An Amazon-Owned Netflix: Good and Bad

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Interest in Amazon (and the company's stock price) leaped yesterday as a rumor circulated about the potential of buying the DVD rental and streaming video service. If true, the partnership would create a behemoth in the movie industry and expand two powerful and reliable businesses. But this deal is not entirely made of gold. Here are the pros and cons.

Pro: Broader Watch Instantly selection

Netflix currently streams about 12,000 movies through a variety of set-top boxes, TVs, and video game consoles. Amazon-on-Demand has 40,000 movies. Netflix streams older films, and the selection leans towards the not-so-awesome side, whereas Amazon-on-Demand streams most new releases as they arrive. If Amaflix (or Netzon) happens, the Watch Instantly selection immediately balloons, giving consumers a vast library of choices.

Con: Higher prices for premium content

While you may have a broader selection, you will likely have to pay more for it. You can expect subscription prices to soar as soon as any deal is made. Amazon makes too much money off its rental service to give it up for free or cheap. Streaming video subscriptions would surely cost more than Netflix's sub-$10 bargain.

Pro: Even better physical disc distribution

Marrying Amazon's and Netflix's warehouses would get discs to your front door faster and more efficiently than before -- a huge feat given Netflix's already stellar reputation for speedy delivery.

Con: Elimination of physical discs

There's no doubt about it: streaming video is the future of watching movies. If Amazon gets its grip on Netflix, there is the potential that the former would kill off distributing physical DVDs and Blu-ray discs in favor of tapping the vein of the next big thing. For those without broadband Internet connections -- or people who prefer to watch discs -- this could be a huge, disappointing fallout.

Pro: Step towards absorbing GameFly and dominating distribution

If Amaflix decides to continue along the physical disc train, the possibility of acquiring GameFly -- the video game equivalent of Netflix -- rises in likelihood. Amazon could then dominate two markets at once and have a stranglehold on how people rent movies and games.

Con: Competition narrows

This, of course, would obliterate the competition. Say good-bye forever to Blockbuster, and watch as Apple TV struggles to maintain relevance. A smart Amazon would keep prices low and drive customers away from iTunes and other methods of digital movie downloads, leaving consumers with fewer choices and locked into a permanent hug with Amazon.

Pro: Could push the Kindle to greater heights

Amazon will continue to keep a close eye on the Kindle, its best-selling eBook reader. And with rumors of an Apple tablet buzzing around the hive, the Kindle may experience a total upgrade into a formidable device capable of both e-Ink reading and some form of video. Plus, if Amazon was in the rental business, why not delegate a section of its Kindle Store to an eBook library?

Con: Might balloon out of control

Amazon definitely has its hands full with the Kindle and its day-to-day online shopping operations. Who's to say that the company would do anything with Netflix after acquiring it? The purchase could, potentially, be just another feather in its cap. After all, Netflix has an almost-perfect business model, and Amazon would be foolish to mess with a good thing. With its plate full of other ventures, Amazon may neglect the innovation Netflix deserves and treat it like a money-making yet easily-ignorable stepchild.

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