Amazon further reinforced its position as the most influential company in the video industry with news late yesterday that it had won the rights to stream the NFL’s 10 game Thursday night football package for $50 million, with plans to make the games available for Amazon Prime members only (they'll still be broadcast alternatively on CBS and NBC, and on NFL Network). The sum is a whopping 5 times more than the $10 million that Twitter reportedly paid for the same rights last season.
The key to understanding Amazon’s willingness to pay up for the TNF rights is the power of its unique business model, based on Prime. As I wrote last November, Prime is the linchpin for Amazon’s ever-expanding video initiatives.
At last summer’s Recode conference, Amazon CEO and founder Jeff Bezos plainly articulated Prime’s value to the company in driving greater customer loyalty and increased purchases (if you’re a Prime customer, you no doubt know this dynamic yourself). And keep in mind, with approximately 60 million members paying $99 per year, Prime generates $6 billion in revenue for Amazon before a single purchase has been made.
Because Prime is so strategically valuable to Amazon, it has added numerous benefits to its original free 2-day shipping feature to drive new member acquisition and improve retention (music, photos, lending library, Audible, etc.). But given the vast sums Amazon is now investing in original and licensed video, it is becoming increasingly evident that the company has concluded that video is in fact the single most valuable benefit it can include in Prime.
For the entire video industry - producers, TV networks, pay-TV operators, sports leagues, advertisers, agencies, etc. - it is imperative to understand what Prime’s ascendance (and video’s critical role in it) means. Simply put, a gargantuan, highly innovative company, with virtually limitless resources, is now pursuing a strategy of using video in service to a broader goal (to sell products) rather than seeking to monetize the video itself through ads, subscriptions or both.
To the extent that Amazon can generate an ROI for Prime on its video investments that exceeds competitors’ ROI through traditional means, Amazon is in a highly disruptive position.
And that brings us back to the new TNF deal, in which Amazon paid far more than any other company in the industry would. While Amazon (and Netflix) have been jacking up the rates they’ll pay for A-list actors and directors for their originals, the TNF deal is the most tangible example of how a discreet property has been revalued using Amazon’s particular economics.
As such, it is the clearest signal yet to the industry of how Amazon can - and undoubtedly will - use its unique Prime business model to reinvent how all kinds of premium video content is financed, distributed and consumed. The industry has never seen anything remotely like Amazon, whose video ambitions are still in just the earliest stages.