Some analysts say it could as investors lifted the value of Time Warner shares by 1.8% and drove Netflix down 5% and Amazon down 1.5% in afternoon trading. The agreement giving Amazon series from HBO including The Sopranos and Six Feet Under “is unparalleled for a subscription-only online streaming service from a quality perspective,” Wedbush Securities’ Michael Pachter says. He estimates that when the deal kicks in next month Amazon will be able to offer its customers 800 episodes of original content “compared to roughly 100 episodes of original content currently available on Netflix.” That could help Amazon to turn its Prime Instant Video offering into a stand-alone streaming service, separate from the current arrangement which — for $99 a year — also includes no-charge delivery for many retail items.
Pachter estimates that Amazon is paying “well above” $200M for HBO’s shows. Bernstein Research’s Carlos Kirjner and Todd Juenger figure the payment to HBO to be “somewhere between $200M and over $400M…at a very high margin” for what they call “a significant addition to the Prime video library.”
Time Warner investors can look forward to “a big lump” of revenues when it reports its results for the current quarter. Just as important, the deal “changes the competitive landscape faced by Netflix.” With the reinvigorated competition from Amazon “it is hard to see how Netflix gets to 60 to 90 million domestic [streaming] subs” — a target that Netflix execs mentioned in a call with analysts Monday. Morgan Stanley’s Stephen Shin says Amazon likely is paying as much as $250M over the life of the deal, adding that today’s news “validates Netflix’s recent decision to raise prices to fund content acquisition.” And Sterne Agee’s Vasily Karasyov notes that the announcement should add some cheer to Time Warner’s earnings report next Wednesday. The strength of HBO’s programming “is often overshadowed by admittedly frustrating ratings trends at Turner networks,” he says.