Starting today, 
Amazon Prime customers can take advantage of the company’s new, unlimited video streaming service. Amazon Prime Instant Video is free, with a few caveats. Quoting from Engadget:
This is only for paid Prime subscribers, so if you’re a college student or the like with a free membership you’re sadly out of luck. Also it’s US only at this point.
Of course, comparisons to Netflix are inevitable here. Early reports say that Amazon’s catalog of titles is comparable to Netflix, while the quality of Prime’s video has been so-so. Prime Instant Video will have some ground to make up if it wants to compete toe-to-toe with the market leader.
Amazon streaming is missing from a few key set-top boxes, including video game consoles and TiVo.
There are 180 million current generation video game consoles on the market, and they all offer Netflix. So that means that Netflix is in more components, has a larger content library and offers higher quality video.
Which is not to say that Amazon is DOA. Not by a long shot.
It would be interesting to know what the goal of Prime Instant Video is. Do Bezos and company want more people to pay for Prime shipping, or is this offer aimed at getting people used to watching videos on Amazon and – later – purchasing media from their ecosystem?
Amazon can assemble a formidable library of content. They don’t need the same titles as Netflix, but the shows and movies need to be compelling. To win here they need to offer a blend of new releases and older classics (think TNT shows and the kind of programming you chill out with on a Sunday afternoon). Expect the library to mature as the service does.
Amazon could also white label Prime Instant Video and let other content providers offer their videos over the Prime streaming media center. The troubled Blockbuster brand could find new life here as a streaming only service (although at this point we’re not even sure if Blockbuster knows what streaming video is).
Finally, Amazon needs to get on as many pieces of hardware as they can. If people can only use Prime Instant Video on their desktop, it will have limited value. One of the first goals needs to be getting on gaming consoles, mobile devices and televisions. Again, this is an attainable goal, especially for Amazon.
I have always maintained that there can be more than one “winner” in the streaming media wars and there is certainly room for Amazon’s service to grow alongside Netflix. While the two services will probably compete for some customers, one does not have to lose for the other to win. It is clear, though, that the stakes of the online distribution game have just been raised.
I think differentiation of content will actually be pretty important to the success of the service. If you make consumers choose between Netflix OR Amazon, I think most will stick to Netflix. If you give them the choice of Netflix AND/OR Amazon, I bet that there are lots of Netflix subscribers who’d love to sign up. Since economies of scale are so important to streaming success (the more subs you have, the more content you can buy), it makes it hard for Amazon to become a powerhouse from the get go on this one. If the big studios were smart, they would accept lower prices in the interim, so that they’d be able to build a new revenue stream for the future, but instead they are going to go with the highest bidder which will hurt Amazon’s chances because they won’t be able to outbid Netflix. What I do think is the most interesting part of this though, is that Amazon is essentially using profits from their Prime program to subsidize the streaming costs. When you also consider that Netflix is using their DVD profits to subsidize their streaming or that Hulu is using ad revenue, it raises an interesting question as to whether or not people need an alternative revenue stream, in order to find success in this new market.
It’s worth repeating: The primary factors that drive media sales are content and convenience. Just below that is price, but even this gets trumped by the first two unless the price is far out of whack. Anything else is far, far secondary.
What does this mean for a new service such as this? Simply put, people are not likely change services when they get what want on the services they already own. So offering popular titles that everyone else offers only helps to keep users on your service, but does not help to gain new customers.
In order to gain new customers, Amazon needs to offer content that no one else has, and then it needs a large library to keep the costumer it gained. Both do not seem likely at the current moment.