Amazon Prime takes on Netflix in new TV ad

Is Amazon getting ready to fight dirty this year?

Until now, Amazon Prime and Netflix have coexisted rather peacefully, considering the fact that they’re two competing subscription video-on-demand services. But now it looks like Amazon may be going for the jugular this year. A new TV ad for Amazon Prime that aired for the first time this week seems to take indirect aim at Netflix.

The ad features a bunch of Prime customers gushing about how completely and ineffably wondrous Prime is. Free two-day shipping! Free movies! Free free! Freeeee! (You can see the commercial here.)

At one point, one customer says, “Who needs to subscribe to another video service? You get video, great movies right there on demand as part of Prime.” Burn.

Prime Instant Video is approaching its third anniversary. Amazon launched the service in February 2011 as a no-cost bonus to the free two-day shipping customers get when they sign up. Today, Prime has over 40,000 movies and TV episodes, and the service is estimated to have over 16 million subscribers.

When the service first launched, many believed it would directly take on Netflix, but the two services have proven to be different enough that many people simply use both over choosing one or the other. Netflix has zeroed in on high-quality original programming with big names, while Amazon has been focused on acquisition and building up its catalog of titles—until recently, that is.

Amazon had a big hit with “Alpha House”—and a not so big hit with “Betas,” but its trajectory is clear: Amazon Prime is moving into the original programming space, and it has many more titles on the horizon.

“While we were incorrectly concerned about Amazon’s Prime Instant Video in relation to Netflix early on, we wonder if that could change in 2014. Amazon has consistently increased their content spending over the past couple of years, with several high-profile TV content acquisitions,” writes BTIG researcher Richard Greenfield, in a blog post. “They have also embarked on original programming, albeit none that is anywhere near as iconic or brand defining the way Netflix has approached originals. Amazon has also become more vocal about Prime and talks about it more openly during conference calls, including the positive impact Prime Instant Video is having on Prime subscribers.”

Is Amazon gearing up to make 2014 the year it takes on Netflix? The company only stands to gain. Prime customers spend significantly more on Amazon than non-Prime members: $1,340 per year to $708 per year, respectively. Additionally, Prime members also shop 50% more frequently on Amazon than non-members. And that $79 annual subscription fee is almost pure profit, with Amazon pocketing $78. Those subscription fees consequently made up one-third of Amazon’s consolidated segment operating income in 2012, according to Morningstar analyst R.J. Hottovy.

So it only makes sense that Amazon would invest in high-quality original programming to lure customers to its service. We’ll see what 2014 has in store for the subscription video-on-demand wars.