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​Amazon takes on Netflix with stand-alone video service

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Titans are clashing, and consumers could benefit.

Amazon (AMZN) is creating a stand-alone video streaming service for $8.99 a month, or about $1 cheaper than Netflix's (NFLX) most popular plan, according to The Wall Street Journal. Amazon didn't immediately return a request for comment.

The online retailer's video service comes at a crucial time for both it and Netflix. Amazon's Prime package, which costs $99 annually, has proven wildly successful with consumers willing to pay upfront for free two-day shipping and services such as streaming video. So far, the company has gained at least 46 million Prime members.

Offering a standalone video service could help Amazon appeal to consumers who, drawn by the company's growing stable of original online shows and other popular programs, want access to its streaming content without signing up for Prime.

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"This could present a great opportunity for Amazon to sign up new subscribers and eventually cross-sell other services to them, including a Prime subscription," wrote Paolo Pescatore, director of multiplay and media at CCS Insight, in a research note. "Amazon is certainly building a strong set of capabilities in both hardware and services to compete with Netflix and others, and we say let the battle commence!"

It may be no coincidence that Amazon's new service was announced just as Netflix prepares to release its fiscal first-quarter earnings results. While Netflix is expected to report strong revenue growth and new subscribers, CEO Reed Hastings may also talk about the impact of a $2 monthly increase that will impact many subscribers next month.

Almost 17 million customers could be hit by the subscription price hike, which will raise those subscribers monthly price to $9.99 from $7.99 in May, according to UBS Securities. About 80 percent of those customers aren't aware the price hike is coming, a separate J.P. Morgan survey found.

In the meantime, to retain subscribers both Netflix and Amazon are investing heavily in content. The companies are financing their own productions, such as Netflix's popular shows "House of Cards" and "Marvel's Jessica Jones." For its part, Amazon's critically acclaimed shows include "Transparent" and "The Man in the High Castle." Both also buy the rights to previously aired TV programs and movies, such as "Downton Abbey" on Amazon and "Friends" on Netflix.

Such programming doesn't come cheap. Amazon is believed to have spent $3 billion last year on buying content, and it's not going to slow down anytime soon. One analyst expects the online retailer may bump up its spending by an additional $1 billion annually.

That's putting pressure on Amazon to find more subscribers. Netflix's price increase, which may take some of its customers by surprise in May, could provide the opening it needs to lure new video viewers. The new service also could help Amazon expand internationally because of the more flexible pricing, Pescatore noted.

Meanwhile, Amazon now also offers a monthly subscription plan for its Prime service. Instead of charging an annual fee of $99, the company will offer a $10.99 monthly plan that can be turned on or off when customers want, a potential boon for the holiday shopping season when more people want free shipping.

Netflix will report its earnings results after the close of trading on Monday. "All eyes are now firmly on Netflix when it reports earnings later today," Pescatore noted.

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