Netflix has nothing to fear from Amazon’s big VOD library

Amazon (s AMZN) announced Thursday that it now has more than 100,000 titles available for rent in its streaming video-on-demand (VOD) library. And make no mistake — that’s a big number! It’s even got some folks saying Netflix (s NFLX)┬áneeds to “Watch out!” But the truth is, Amazon’s big library is not really a threat to Netflix’s subscription streaming service.

Let’s run the math

In its press release, Amazon notes that new releases in its Instant Video service are available to rent for as little as $3.99 a piece. Meanwhile, Netflix’s streaming service offers unlimited viewing of any titles in its library for $7.99. So for $8 you can either watch two movies on Amazon’s service or an unlimited number of films or TV shows on Netflix. Which do you think most people will choose?

Bigger isn’t always better

So Amazon has a lot of VOD titles. But how many of them are actually any good? Netflix CEO Reed Hastings has said in the past that when his company considers licensing content, its focus has been on quality rather than quantity. After all, if it were just concerned about replicating the number of movies available in its DVD-by-mail service, Netflix could boost title count more quickly by paying smaller licensing fees for truly long-tail How-to or fitness videos. That’s not to say that Amazon’s focus on quantity of titles comes at the expense of quality — and to be clear, it does have a number of in-demand titles you won’t find on Netflix. But the point is, you can’t judge the value of a content library on title count alone.

Folks love all-you-can-eat

There’s certainly a convenience factor in being able to pick a movie on demand and watch it instantly, especially when it’s a new release. However, there’s power in the subscription package. And online viewers are increasingly turning to services like Netflix and Hulu Plus as opposed to online VOD services like Amazon Instant Videos or Apple’s iTunes (s AAPL).

Don’t believe me? Let’s look at some numbers: In the second quarter, revenues from subscription services grew more than 24 percent, to $808.2 million according to data from the Digital Entertainment Group. Compare that to digital rentals, which were largely flat year-over-year at $455.9 million.

It’s not an either-or situation

Just as Netflix hasn’t killed Redbox, (s CSTR) Amazon Instant Videos won’t kill Netflix. The truth is that there will be users for all three services: Netflix when you want to veg out and watch a movie that you wanted to see but never got around to, Amazon when you’re aching to catch a movie that just came out for rental, and Redbox when you’re already out and make a cheap rental on impulse.

Photos courtesy of Flickr users Dave Dugdale and jeffgunn.