nScreenMedia OTT multiscreen media analysis

Netflix and Amazon’s approach to anchor tenancy

netflix amazon splash

The average SVOD customer in the US and many European countries has two or more services. Netflix and Amazon are monopolizing those two slots. Here’s how they get there and become an anchor tenant of a customer’s video world.

Average US home has 2.8 SVOD services

New data from Ampere Analysis reveals that in established SVOD markets multiple service subscriptions are the norm. In the US, the average SVOD home now has 2.8 SVOD subscriptions, while in the UK and Germany that average home has two services.

The increased number of services also means spending is increasing. Ampere says that household spending on online video services more than doubled in the US since Q3 2015, up from $15.60 a month to $35 in Q1 2018. In the UK, spending grew from $10.40 to $18.70 over the same period.

Netflix and Amazon are doing an excellent job monopolizing those two SVOD slots in many a consumer’s entertainment world. Here’s how they get a customer to subscribe and keep them for the long haul.

Netflix’ play for anchor tenancy

Netflix is trying to convince people that it is the only video entertainment service they need. It is doing this by outspending every other SVOD service for content. It is expected to spend $8 billion on content in 2018, and this spending is causing the company to build a mountain of debt.

REDEF’s Matthew Ball says the company has racked up $9.1 billion in debt payment obligations and $18 billion in content obligations to finance its massive expansion in primarily original content. However, he doesn’t regard this spending as reckless. He sees it as an investment in growing customers and solidifying the company’s position as the must-have SVOD service.

The strategy appears to be working. The company continues to turn in impressive growth, even in mature markets like the US. In the last year, Netflix increased US subscribers 12%, to reach 57 million. As well, since there is a continuous flow of new, quality, original content, most subscribers stay subscribed to the service for a long period.

For Netflix, the investment in content, and particularly originals, is both a strategy to recruit new subscribers and retain existing customers.

Amazon’s play for anchor tenancy

For Amazon, the investment in content is primarily a tool to recruit new subscribers. Like Netflix, it is investing heavily in original content too. It is expected to spend $5 billion in 2018. Moreover, like Netflix, some of that money will go to the creation of original shows and license movies and TV shows.

However, it is also spending money to purchase the rights to shows and sports that can help it in specific regions. For example, it purchased the exclusive rights to an odd cluster of Premier League soccer games in the UK. It also paid a reported $250 million to get the former-hosts of the popular BBC show Top Gear to produce a new show, The Grand Tour, exclusively for Amazon.

Amazon’s approach to anchor tenancy, however, is different to Netflix. It uses three mechanisms to keep people locked into Amazon Prime Video:

  1. The best deal for Prime membership is to buy a year subscription
  2. Free 2-day shipping in the Prime store
  3. Reselling other SVOD services in the Prime Video ‘store’.

Amazon’s Channels program is a very powerful tool to retain subscribers. Once a customer subscribes to Showtime or Starz through Amazon, it becomes harder to leave. Moreover, Amazon is putting its retailing muscle behind selling the add-on services to customers.

According to Ampere Analysis, the strategy appears to be working. Amazon customers are much more likely to have two or more SVOD services than non-customers.

Why it matters

It is increasingly common for homes in the US, Scandinavia, and Europe to have 2 or more SVOD services.

Two companies, Netflix and Amazon, are particularly successful at ensuring they are one of the two services consumers chose.

Netflix strategy for subscriber recruitment and retention relies upon a steady stream of new content.

Amazon’s strategy for recruiting Prime Video customers also relies upon content. However, its strategy to retain subscribers is very different from Netflix.

Facebooktwittergoogle_plusmailFacebooktwittergoogle_plusmail

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.