Monday, July 29, 2013, 10:37 AM ET|Posted by Will Richmond
Google's new Chromecast device dominated the video landscape last week, making it easy to miss a highly noteworthy news nugget from Amazon: on its Q2 '13 earnings call last Thursday, Thomas Szkutak, the company's SVP/CFO said, "We're having new Prime members come to Amazon largely because of video." Szkutak's comment was a stark reminder of how far video has come for Amazon in the 2 1/2 years since it was first included in the $79/year Prime service.
Video - and other content/apps - are critical to Amazon because they all support two of the company's most important consumer-facing priorities: growing its highly profitable and sticky Prime service and supporting its line of Kindle devices in the fiercely competitive tablet market. Amazon's ability to successfully use video in service to these other businesses no doubt helps drive its willingness to spend heavily on content licensing and also to invest in its own original productions.
From a competitive standpoint, while Netflix has an early lead in the SVOD OTT space in both subscribers and content, in my view, Amazon's size and diversified revenue model represent a significant long-term threat. Amazon's proven willingness to prioritize long-term investments over short-term profitability, combined with its new recognition of video as a strategic driver, mean that licensing costs are definitely going to climb for all SVOD services, and that exclusives will become more commonplace. This dynamic favors those, like Amazon, with the deepest pockets.
In fact, Amazon has made massive progress with its streaming video selection since announcing videos would be included in Prime. Back in Feb. '11, I asserted that, with a (then) relatively narrow selection of content from Amazon, Netflix was on safe ground. However, by September of last year, Amazon had gone on a content licensing blitz, signing at least 14 different deals.
There's been no letup in the past 11 months, as the company has continued to expand existing content deals, sign new ones, grab exclusives where it can, and unveil a slate of originals with proven talent. As I detail below, next to Netflix, Amazon has emerged as the most aggressive licensor of TV programming, now with 40K titles. Now, the Amazon content steamroller seems poised to gain further momentum for one simple reason: as Szkutak's comments show, Amazon has proven to itself that video can be a driver of the larger Prime and Kindle strategic priorities.
No doubt that was Amazon's assumption 2 1/2 years ago at launch. But now that it's proven, I expect Amazon will double down in content, with huge implications for competitors, content providers and consumers going forward. As Szkutak also said last week, it is still "very early" in terms of how these businesses will play out. But one thing that's for sure: with its massive size plus dedication to success, Amazon is going to be a major factor in the video space.
Note, following are content licensing deals Amazon has announced since last September, my last update:
Turner/Warner Bros.- 12-17-12 (Exclusive for "Falling Skies," "The Closer")
A+E Networks - 1-4-13 ("Pawn Stars," "Storage Wars," "Dance Moms," etc.)
PBS - 2-1-13 (Exclusive for "Downton Abbey")
CBS - 2-13-13 ("Everybody Loves Raymond," "Jericho," "The L Word," etc.)
Sony - 2-26-13 (Exclusive for FX show "Justified")
Scripps - 2-28-13 ("Rachael Ray," "Anthony Bourdain," "Iron Chef," etc.)
NBCU 5-16-13 (Expanded deal, certain exclusives, "Grimm," "Suits," "Covert Affairs," "Hannibal," "Defiance," "Smash," etc.)
Viacom - 6-4-13 (Expanded deal for kids, MTV, Comedy Central, etc.)
PBS - 6-26-13 (Expanded deal for "NOVA," "Masterpiece," Kids shows "Caillou," "Arthur," etc.)
CBS - 6-28-13 (Exclusive - "Under the Dome")
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