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Amazon Prime Video emerges as complete platform, imminent threat

Amazon Channels

Amazon is attracting an unprecedented amount of attention in corporate boardrooms around the world. None more so than in media businesses. The focus is entirely justified.

Amazon the new corporate boogeyman

One company seems to pop up in public corporate shareholder conference calls more than any other, according to FactSet. So far this year, Amazon has been mentioned 2,090, 40% more than former corporate boogeyman champion Alphabet (Google). The electronic retail giant has a lot of shareholders in competitor companies rattled. They want to hear how executives are positioning themselves to prosper in the face of Amazon’s broad expansion.

Arch-competitor Google, for example, is scrambling to keep up. In the intelligent assistant market, Google is trying to fix the sizable retail advantage Amazon enjoys with its Echo devices. Given the intense pressure that brick-and-mortar retailers are feeling from Amazon, little wonder that Walmart and Target are only too ready to partner with Google Home.

Media moguls rightfully concerned about Amazon

Executives at media businesses are similarly worried about the competitive threat posed by Amazon. Earlier this year Digital TV Research surveyed 380 digital TV industry executives across 42 countries. A question in the survey asked the executives which company they felt would have the most significant single impact on digital video distribution over the next two years. Amazon came out ahead of all other companies, with 27%. Netflix came in second with 21%, and significant international telecom operators (including AT&T, Comcast, and Liberty Global) were a long way back in the third place, with 12%.

The nervousness around Amazon is entirely justified. The retail giant has steadily built out its ability to deliver all a consumer’s video needs, and it has been broadly successful in each of its efforts.

Prime Video platform’s expanding capabilities

171016 TVOD store market share by usersWhen it added video to iTunes, Apple dominated the transactional video market. However, according to TiVo data, Apple has all but lost the market. 17% of consumers rent or buy videos from Amazon, while only 8% use iTunes. The addition of Prime Video has also been very successful for Amazon. While most Prime members join to enjoy the shopping benefits, 75% of them also watch the video.

However, Prime Video’s real value is as a platform to build a comprehensive video experience for its customers. The timely addition of Channels to the experience has been good for partners, making it easy for Amazon customers to find their content and subscriber to their service. It’s also been good for Amazon, providing extra revenue through hosting fees and giving consumers more reason to use Prime Video.

The latest addition to Amazon’s video arsenal is the capability to live stream and simulcast television channels. In May, Amazon launched Channels in the UK and Germany. UK Prime members can subscribe to live linear TV channels including Discovery Channel (£4.99 a month,) Eurosport (£6.99 a month,) and ITV’s free-to-air channels (£3.99 a month.) The company is also enjoying some success with live NFL streaming to its worldwide customer base. The NFL coverage is also proving useful in honing an emerging video advertising model.

Beefing up video advertising

Amazon is trying to attract more advertisers to its video platforms by launching more advertiser-friendly initiatives. While this could have the most impact on Amazon Video Direct, the company’s YouTube-like video aggregation portal, it also could help Prime Video and Channel Partners. For example, Channel partners could adopt freemium models to help recruit subscribers.

The Wall Street Journal reports that advertisers are experimenting with the live NFL stream and are pleased with the results so far. Amazon’s ability to show a direct link between an ad and increased store sales is unique in the industry. As well, the ability to target specific audiences leveraging the enormous amount of customer data available to the company is also resonating. For example, Sling TV has been buying ads during the broadcasts. Warren Schlichting, executive vice president of marketing, programming and media sales at Sling TV and parent company Dish, explained Sling TV’s motivation:

“Part of the incentive is that these Amazon Prime users are affluent; they’re folks that purchase things online, and we think and we’re pretty sure that they’re also more likely to watch streaming.”

Problems remain to be solved

All has not been plain sailing for Amazon. Despite the $4.5 billion content budget for 2017, Amazon failed to win a single award at the Primetime Emmy’s. Netflix and Hulu were much more successful. Audiences for critically acclaimed shows such as Transparent remain relatively small, which illustrates a more profound problem the company must solve. Consumers do not spend nearly as much time watching video on the service as Netflix and Hulu subscribers devote to watching shows and movies with those services.

That said, the company’s video strategic direction seems well chosen to rectify these challenges. Working to build more value into the Prime Video platform for viewers, partners, and itself should, over the long-term, increase engagement and boost revenue. Moreover, as we have seen in retail, Amazon is prepared to suffer short-term losses to win the long game.

Competitors are now acutely aware of the Amazon threat. Expect to see alliances in the video market to take on the challenge.

Why it matters

Amazon is building out its video platform to be able to deliver a comprehensive set of video services to consumers.

The strategy poses a significant threat to many established video services.

To match the continuing Amazon threat, expect to see new alliances in the online video ecosystem.

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