Netflix's New Video Encoding Technology: A Way to Beat Data Usage
Netflix is using Amazon’s cloud computing platform
Netflix’s (NFLX) new video encoding technology encodes Netflix’s video catalog on the Amazon (AMZN) Web Services (or AWS) platform. The majority of Netflix’s data processing is done on the AWS platform. It’s interesting to note that on the retail side, Amazon competes with Netflix through Amazon’s Prime Instant Video service.
As the graph below shows and according to a Digitalsmiths report, Netflix is the most popular service, with 49% of OTT (over-the-top) subscribers. Amazon’s Prime Instant Video service ranks second place with 20% of OTT subscribers. About 12.1% of users subscribe to Hulu, and 4.3% subscribe to Time Warner’s (TWX) HBO Now. Hulu is jointly owned by The Walt Disney Company (DIS), NBC Universal (CMCSA), and Twenty-First Century Fox (FOXA).
Amazon’s acquisition of Elemental Technologies
In September 2015, Amazon acquired Elemental Technologies for an all-cash deal of about $296 million. Elemental will integrate its services with AWS (Amazon Web Services). Elemental provides video encoding technology for video delivery to multiscreen devices. The company has 700+ media customers. Elemental also provides video content delivery services for 4K Ultra HD television sets.
Considering that Netflix’s new video encoding technology is being run on AWS servers, the Elemental Technologies acquisition could give Amazon significant bargaining power over Netflix. It also remains to be seen whether Amazon would use Elemental’s video encoding technology for its Prime Instant Video service.
Comcast makes up only 0.85% of the iShares S&P 500 Growth Index (IVW). For investors interested in getting exposure to the entertainment sector, IVW has a 3.2% of exposure to that sector.
Correction: This post originally claimed that Amazon acquired Elemental Technologies for an all-cash deal of about $500 million. The correct figure is around $250 million, so we have revised the article. We regret this error.
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