Amazon is shelling out $50 million to stream National Football League games, and that’s just the start.
This year, the e-commerce titan is expected to spend $4.5 billion on video-streaming content, nearly double last year and not too far from Netflix’s $6 billion video budget. And video is the only thing Netflix does; Amazon also sells shampoo and cloud services and its very own talking speakers.
So, why is Amazon spending so much dough? For one thing, so it can sell you that shampoo.
Amazon likes to draw us into its world and make sure we stay there and keep shopping. It does this with its e-readers that can sell you more digital books and Echo speakers that allow for voice shopping.
The company wants to use its Prime Video streaming service to do that and more, using it to sell more digital movies and TV shows, retain more Prime subscribers and take up more of our time in hopes of of selling us more physical goods. And to do all that, Amazon needs to spend and spend so it can keep up with Netflix.
Still, Amazon doesn’t provide a lot of details on its Amazon Studios business, so it’s hard to say whether this strategy is resulting in Prime Video profits.
“We think it’s working,” Amazon finance chief Brian Olsavsky said on a call with reporters Thursday. “We’re very bullish on what we’re seeing both with how customers are responding and the quality of the content.”
The company’s latest earnings, reported Thursday, continue to show strong growth, so Amazon can keep funding its streaming dreams for now. For the first quarter, Amazon posted its eighth straight quarterly profit, after it spent years seesawing between small profits and losses.
Profit reached $724 million, up 41 percent, thanks to a big contribution from the Amazon Web Services cloud business. Sales rose 23 percent to $35.7 billion. Results beat Wall Street estimates and shares jumped nearly 4 percent to $953 after hours.
Prime Video may offer additional benefits down the road. The service became available in 200 countries in December, so it now works as Amazon’s global business card, introducing customers to Amazon’s services before the company even starts selling goods there.
“In many countries where there isn’t an Amazon retail presence,” Olsavsky said, “it gives us an ability to start a relationship with a customer, get them to be a subscriber of Amazon Prime Video, hopefully, and then use that for future purchases of other Amazon items.”
These benefits could offer a reason why an online store would spend huge — reportedly $250 million — to land Jeremy Clarkson and his new auto show, “The Grand Tour.” Or why it reportedly paid $12 million for the romantic comedy “The Big Sick” at Sundance this year, making one of the biggest deals in the film festival’s history.
Also, Olsavsky said the NFL deal is well-timed for the premiere of the next seasons of Amazon originals “Man in the High Castle” and “Grand Tour.”
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Answering whether this splurge is making money is another story entirely. Amazon in November did say the premiere of “Grand Tour” was its biggest ever and resulted in a sizable bump of new Prime membership sign-ups. However, Amazon doesn’t disclose its Prime membership numbers, Prime Video spending or viewership. So, it’s difficult to figure out if any of these Amazon originals, including “Man in the High Castle” and “Transparent,” were worth the investment.
A new survey from market researcher Nielsen offers a big red flag. Surveying 500 households between January and February, Nielsen broke down how much time US viewers spend with different streaming services. Nearly half of their streaming time was gobbled up by Netflix. YouTube took up another 15 percent and Hulu 8 percent. Amazon’s tally: just 4 percent.
Investment bank UBS did its own streaming study in 2015 and reached similar conclusions.
It’s hard to jump to too many conclusions about those viewership numbers, but it’s pretty obvious Amazon wishes its viewing times, just like its spending, were a little closer to Netflix.
Despite these weaker numbers, Amazon may have to spend a lot more just to stay in the streaming game, after Netflix started its own spending binge to bring in high-profile stars and create buzzy, big-budget series.
For the current second quarter, Amazon predicted sales between $35.25 billion and $37.75 billion, just shy of expectations, according to Yahoo Finance.
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