• Prime’s Unique Business Model is Fueling Amazon’s Ever-Growing Video Ambitions

    Evidence of Amazon’s expansive video ambitions is everywhere these days. The company has transformed itself into arguably the most influential industry player heading into the new year. There are now so many Amazon video initiatives, it’s getting hard to keep track.

    First and foremost, it’s critical to understand the most important attribute Amazon is bringing to bear in video, that enables everything else and makes it such a formidable new competitor: its unique business model, based on Prime. As Amazon CEO Jeff Bezos explained in a Recode interview this past summer (see 37:32 cue point), Prime has become a “physical digital hybrid membership program that is unlike anything else.” Bezos clearly spells out how video helps drive new Prime memberships and retention. Prime members are more loyal to Amazon, purchasing more products.

    Because video has become so instrumental to fueling Prime-related revenue streams, the company benefits by including it at no extra charge in the Prime membership. As such, video is not an end in and of itself for Amazon, as it is at all other media companies. In other words, rather than video needing to stand on its own legs, supported by revenues from subscriptions, advertising or both, as is the case at all other media companies, Amazon can look at video investments in terms of how they help to drive the Prime model.

    On top of this, given Amazon’s superb data capabilities, it is undoubtedly able to pinpoint exactly which programs, genres, actors, etc. contribute the most value, in turn influencing subsequent decision-making about which video to pursue. This has been a Netflix hallmark too, but in Amazon’s case, the data set is far richer as it’s not just limited to video behavior, but rather purchase data as well. Amazon is, in effect, blending commerce and video viewing into unprecedented new viewer profiles. It’s hard not to see all this leading Amazon into some kind of ad-supported video business down the road as well.  

    Back to how Amazon is expanding its video industry influence. Yesterday, the WSJ reported on a wide range of discussions Amazon’s had about expanding into live sports, a move that would take direct aim at pay-TV’s core value proposition. This past weekend, Amazon’s new original series, “The Grand Tour,” which reportedly cost $250 million, launched, with the actors explaining it will be available in 200 countries around the world in December. That signaled a global expansion that will compete with Netflix as it too gears up internationally.  Amazon announced this morning that “The Grand Tour” premiere episode broke viewership records on Prime Video and also that “total new Prime membership sign-ups exceeded all previous days with the exception of Amazon’s renowned Prime Day.”

    “The Grand Tour” investment is part of what Amazon’s CFO said on its Q2 earnings call would be a doubling of content spending in the second half of 2016, which is contributing to a massive increase in salaries for A-list Hollywood talent, in turn pressuring all existing TV networks (related, “Manchester by the Sea” just opened in theaters, a film Amazon acquired for $10 million, outbidding all studios).

    Meanwhile, today’s release said that “Amazon Channels” (originally the “Streaming Partners Program”) now includes over 80 different SVOD services that Prime members can easily subscribe to, extending key subscriber acquisition, delivery and billing support to the SVOD industry. As well, with new search and recommendations capabilities in its Fire TV devices that incorporate these SVOD partners, Amazon helps to drive viewership of these services and offer a more satisfying viewer experience. While Comcast’s recent Netflix integration is a big step forward, Amazon is much further along in wrapping SVOD services into its core model.

    Last but hardly least is one critical feature Amazon enabled in September, 2015 throughout Prime Video - the ability to download programs to mobile devices for offline viewing. This allows viewers with limited or no access to WiFi to enjoy Amazon programs without busting their mobile data plans. Amazingly, over a year since Amazon debuted downloading, Netflix hasn’t done anything in the U.S. and has only signaled it may offer downloading in certain international geographies. Amazon’s downloading feature is a bona fide differentiator.

    No doubt there are other things Amazon is doing with video that it will unveil in 2017. For sure, the upcoming holiday season will see a surge in Prime memberships and viewing. Earlier this year, research showed that already 75% of Prime members are watching video. With all of the video investments Amazon is making, it is steadily driving to a point where virtually all Prime members will view video and those who identify video as the most important reason for signing up for Prime in the first place (as opposed to 2-day shipping) will increase as well.

    Amazon is using Prime to build a formidable presence in video that all competitors would be wise to take note of. Amazon’s industry influence is already considerable and will surely grow further in 2017.