AMZN Must Focus on Content

April 03, 2014, 10:00 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Amazon (NASDAQ:AMZN) completely whiffed, and if they are not careful they will begin to lose subscribers from their Prime service.  The trend is not to add equipment, but to streamline equipment, and Smart TVs are coming with pre-installed internet connections, so what Amazon is doing is not needed and adds no value.  Apple (NASDAQ:AAPL) was on-time with their set top box a couple years ago because there was no alternative back then, but Amazon is not only late to the game, but this move is a complete waste of time. 

Amazon clearly must do everything they can to compete in the streaming media space, but their focus should be on content not on hardware.  People who have smart TVs are moving away from additional equipment anyway, so adding equipment is somewhat counter-trend as well.  For example, I use a smart TV with pre-installed internet connection of course, and we do not use cable, so there are no set top boxes to clutter our room.  That is the way of the future, not the addition of boxes.

However, I do find significant limitations between the current streaming media providers, Hulu, Netflix (NASDAQ:NFLX), and Amazon, because they seem to have stopped paying up for movies and other third party media.  For example, Amazon Prime had offered Suits and Downton Abbey for free to its Prime customers before, but apparently the costs were too high, and they now charge for those shows.

The only free movies and television you can find on Amazon now are the ones you can find for free in other streaming media services too, making them all seem similar.  The standout is of course Hulu, which is owned by the companies that produce the majority of the television content, but Hulu's business model is based on running ads, in addition to paying for Hulu Plus of course.

My point here is that it is this content that matters in the competitive world of streaming media, not the hardware, and in that respect Amazon whiffed big time.

The stock absolutely reflects this, and recently it broke down below the longer term support level offered in our real time trading report for AMZN.  When it did a sell and short signals surfaced by rule.  Those only come at two times, either when resistance levels are tested or when stocks break down below support, and the latter is what happened with AMZN.  That actually occurred before the news, so it seems that Smart Money, who usually knows in advance, started to be disappointed before anyone else.

That is the best way to make money in this stock by the way, listen to what Smart Money is doing with their pocketbook.  Leading up to the news, and very apparently after AMZN raised rates on Prime Customers, Smart Money started to sell again, and they sold hard.  If Amazon Prime cannot differentiate itself based on content they will lose subscribers, and this recent whiff brings them closer to that reality.

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