Redbox takes backseat as Amazon sets up for toe-to-toe fight with Netflix

Netflix (Nasdaq: NFLX), for all intents and purposes, has faced pretty minimal competition in its run up to the "God of Streaming Video" title. First it dominated the DVD-by-mail segment, then, virtually overnight, Netflix took over the streaming media market segment, driving subscriber numbers over 20 million. For a while, it looked like Netflix had the potential to become as much a verb as Xerox, as in "to xerox a document." It's not that hard to imagine someone saying, "Ah, I think I'll hang out tonight and Netflix." Wait, a friend actually said that to me last week.

Last week, DVD-by-kiosk seller Redbox announced it was launching its own streaming play, telling the Los Angeles Times that it was going head-to-head with Netflix, offering subscribers multiple movies to multiple devices. The rumor is that the company would offer a cheaper service than Netflix, in the $5 a month range.

And, reports said it likely would team with Amazon (Nasdaq: AMZN) for delivery, although Vudu, Apple, Sonic Solutions and even Netflix have been mentioned as possible partners.

Today's announcement by Amazon that it would make some 5,000 movies and television shows available as a free add-on via Amazon Instant Video for members of its discount shipping service, Amazon Prime, might take it off the table as a running mate for Redbox as well.

What it also does, besides muddying the waters for Redbox, is put a stronger competitor on the field, with the potential to reach a bigger audience than Redbox and, perhaps, even Netflix.

And, where Redbox would require subscribers to toss in an extra $72 a year for the service (and Netflix $84 for its low-end service) Amazon Instant Video is free, at least to subscribers of its Prime's $79 shipping deal, which allows subscribers and family members to use two-day shipping for items bought through Amazon.

That "free" tag might prove alluring. Instant Video is available on Macs, PCs and some 200 connected TVs, Blu-ray devices and set-top boxes, Amazon said. While not as ubiquitous as Netflix (it's not likely to get its own buttons on remotes any time soon), starting with 200 isn't bad.

Another thing Amazon has... very deep pockets. While Redbox is strapped for cash (its parent, Coinstar, has just $70 million in cash on hand and $390 million in debt on the balance sheet), Amazon has enough resources to make some content deals on its own. Of course Netflix has $350 million available for content purchases, too, and has spent pretty freely to bring new content online faster.

Right now, Netflix's 20,000 pieces of content trumps Amazon's 5,000 pieces.

Content, after all, is king, but you need cash for it and Amazon's got a pretty good warchest available.

Of course it pales in comparison to that other 800-poud gorilla in the room, Apple, which has some $50 billion in reserve. But that's another story. -Jim