Amazon, US-based global e-commerce behemoth is yet another company investing heavily in video content and the consumption of which is tied to its Prime Membership. While, the revenues from Prime Membership are significantly below revenues from core e-commerce and AWS, the Prime Video platform is beginning to make the right noise. One wonders if it’s just a ‘pull’ towards the larger e-commerce ecosystem or is video actually a growth driver.
Amazon’s Several Moving Pieces
Amazon, US-based global e-commerce giant, is amidst a highly impressive growth story which has seen it evolve from an online bookstore to a much wider full-service ecommerce platform as it continues to hunt for global ubiquity. Growth in Amazon Web Services (AWS), in addition to tactful M&A ranging from a big data company (Alexa for $250mn), a live video game streaming platform (Twitch for $970mn), an apparel website (Zappos for $1.2bn) and an organic grocery chain (Whole Foods for $14bn) among several others, has invigorated Amazon’s global footprint.
A closer look at the FAANG stocks (Facebook, Apple, Amazon, Netflix & Google) over the last five years, demonstrates Amazon’s impressive performance, coming in next only to Netflix despite acquisitions and company life-cycle asymmetries.
Note: These stock prices are normalized and represent a growth in $1 investment over the selected time period. Also, as an interesting titbit around FAANG stocks – If you would have deployed $1 each in FAANG stocks in 2013, you would have $27 now, led by Netflix and Amazon – a phenomenal return, albeit with the benefit of hindsight.
Amazon and its Multifaceted “Prime Membership”
There are several growth levers at play at Amazon, however, the focus of this article is Prime Video, and for that, understanding of Prime Membership is imperative as they both are inextricably linked. Prime Membership is Amazon’s subscription-based membership program which has been deployed globally with varying degree of benefits and pricing strategies. Amazon had been candid over the years in telling us how many subscribers they have. Recall, the famous slide (below) Jeff Bezos’ put up in his presentation in 2014, highlighting growth in Amazon Prime Members but with no numbers but a general “tens of millions” title.
However, in 2018, Amazon revealed for the first time that they have grown to 100mn Prime Members and if the above chart is any clue, I suspect the growth trajectory has been fairly steady since 2005 rather than a cluttered topsy-turvy one.
At its core, the value proposition that Amazon Prime Membership started out with was faster and free delivery of product purchases on Amazon‘s e-commerce platform. Over time this has expanded to several other value added benefits such as purchase discounts and rewards, discounts on Whole Foods products (following the acquisition of Whole Foods), ad-free viewing on Twitch which is Amazon’s video game streaming platform, free access to Prime Music AND of course free access to its Prime Video platform – focus of this article.
Prime Video – More than Just a ‘Pull’ into E-commerce?
Scrutinizing Prime Video on a stand-alone basis is a fairly complex endeavor as it represents just one of the several moving pieces within the larger Amazon machinery. This “bundled” value proposition of Amazon Prime Membership adds an additional layer of complexity, making it difficult to strip out Prime Video solely. This also makes it an arduous task to establish an apples-apples comparison between Netflix and Amazon Prime Video. Notwithstanding the aforementioned logistical challenges, what I am certain about is that Prime Video is a key element in the overall value proposition associated with Amazon’s ecosystem.
So What is Prime Video Designed to Do?
Let’s look at the fairly obvious arguments first.
Argument 1: Prime Video is designed to act merely as a ‘complimentary asset’ aimed at ultimately deflecting customers towards Amazon’s core e-commerce business whilst injecting a nice recurring revenue stream. Also - Wall Street loves nice predictable recurring revenue streams!
Argument 2: How do you make an e-commerce centric membership sticky and consequently mitigate churn? – you throw in free content. Again, a viewpoint suggesting Prime Video is engineered to enhance and promote Amazon’s core e-commerce business.
While both sound arguments, I believe, they give a somewhat “defensive” undertone to Amazon Prime Video strategy and in effect understating the power of Video content.
When an assets primary objective is argued to be
i) churn mitigation
ii) drive traction in an adjacent service offering,
I would categorize it as defensive.
However, in my view, the underlying strategy as it stands today is significantly more offensive, especially in the Indian context.
I believe Amazon realizes that video content need not be viewed as just a defense to its membership plan, but can be used as a subscriber acquisition tool on a stand-alone basis. Amazon didn’t have to test the market for this hypothesis – Netflix did it from them. Netflix already addressed the big elephant in the room – will people pay on a monthly basis for video content?. And the answer evidenced from Netflix’s stunning growth is an emphatic Yes (I discussed Netflix in greater detail in my previous post).
In my view, Amazon is leveraging some sort of a second mover’s advantage, wherein it approached an already tested and verified market courtesy overwhelmingly positive results from Netflix’s test hypothesis. While, Amazon does not disclose content spends with the same level of granularity as Netflix does, industry estimates put it at around $4bn this year – a substantial budget strongly endorsing the underlying importance of video. From an Indian perspective, TV exclusive series such as Inside Edge, Breathe, Comicstaan etc among several others are all Originals (or Exclusives) and as such case in-point examples of subscriber growth catalysts. In that context, perhaps Amazon has borrowed a page from Netflix’s own very impressive playbook.
But… that’s Where the Similarities with Netflix End…
Live Sports is unexplored territory for Netflix and other subscription based VOD platforms (Hotstar and its freemium model is a notable exception and an interesting case study which I will look at next week). However, Amazon (via the Prime Video platform) has ventured into live sports through streaming partnership with US-based National Football League (NFL) for Thursday Night Football – a missing piece in Netflix’s value proposition. The deal was initially penned in for 10 games for the 2017 season and got renewed in 2018 for 2018-2019 season for 11 games underlining Amazon’s sporting intentions. Interestingly, while these rights were won by Amazon, market speculation suggests that other bidders included Twitter and YouTube, who both, perhaps see live sports streaming as a key ingredient to their value proposition.
Amazon Prime Video further strengthened its sporting footprint by securing distribution rights within UK for 20 games in the English Premier League (EPL) for the current season. Although the EPL games identified are not prime time TV watch slots, but nonetheless serve as a strong statement of intent. Recall, EPL is one of the most watched sports leagues in the world.
Regional focus in India: Within minutes of browsing on the Prime Video platform, again in the Indian context, one can clearly see a library with significantly greater vernacular diversity compared to Netflix. There is a clear heightened focus on Southern Indian languages with Tamil and Telugu appearing to be key. This is hardly surprising since Tamil and Telugu represent the biggest markets after Hindi in mainstream movies. Furthermore, there are a meaningful number of India-centric exclusive stand-up comedies on the platform, involving some notable names such Biswa Kalyan Rath, Kenny Sebastian, Kanan Gill, Zakir Khan among several others who have thus far relied on YouTube as their primary mode of content distribution.
Amazon has adopted the traditional approach when it comes to movie distribution, unlike Netflix. Netflix has explored ‘day-and-date release (i.e. releasing a movie on a VOD platform the same day as its theatrical release) in effect disrupting the traditional “theatrical window”. Amazon, on the other hand has taken the more cookie-cutter approach embracing traditional distribution methods. While Amazon still typically preserves first window rights on the Prime platform, it still has a tactically different approach to movie distribution.
Prime Subscribers in India are Tracking Ahead of Netflix
Despite the varying viewpoints on Amazon Prime Video’s strategy and its relative strength in the VOD landscape, one finds it impossible to deny that e-commerce is still Amazon’s immovable core value proposition. That being said, Prime Membership, priced at INR999 per year, a steep discount to Netflix, includes i) free and faster e-commerce delivery ii) discounts and other benefits iii) access to Prime Music AND iii) access to Prime Video. Given the discounted price (vs. Netflix), one would expect faster subscriber growth on the Prime Video platform, ceteris paribus.
This can somewhat be seen in prime subscriber count of an estimated ~10mn - meaningfully higher than Netflix’s India subscriber count. A metric not really comparable though, given the noise emanating from the ‘bundled’ value proposition. But, I believe, like Netflix, Amazon too views India as a key market and sees local content as a critical growth driver. A rich library of Hollywood and Bollywood titles , in addition to several India-centric content as alluded to earlier, clearly corroborates this view. Furthermore, well-documented press coverage on output deal with Salman Khan Ventures for exclusive distribution rights after the typical theatrical window closes and months before linear broadcast distribution kicks in, substantiates the view further.
Rising tide lifts all boats but Amazon might have an edge
I believe sector-wide tailwinds should help all industry-participants gain additional traction. However, Amazon’s wider service offering should give it some kind of competitive edge from the context of subscriber loading. Its discounted pricing coupled with other e-commerce benefits goes a long way in positioning it as more of an additive service from a wallet share perspective rather than a substitute (or cannibalistic) to other video platforms in the market. Amazon’s content strategy should enjoy a slightly more de-risked profile just because they have additional value proposition hidden behind the Prime Subscription to fall back onto. This, I believe, is a meaningful advantage and one which places Amazon at slight advantage vs. other pure play content platforms. However, as is always the case - the need to consistently deliver high quality cannot be understated.
Next week I will do a deep-dive into Hotstar. Stay tuned.