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Retail the key to Amazon TV success
Editor
| 07 June 2016
To compete better against online video rivals, Amazon can use content to persuade customers to sign up to its Prime service and offset the costs against the increased amounts that customers spend on shopping.
Ampere Amazon 7 June 2016This is the standout finding of research from Ampere Analysis on purchasing products which believes that fundamentally Amazon’s consistent annual growth, solid market position, firm focus on the future, and extensive infrastructure make it a formidable player.
The analyst noted that in 2015 Amazon became the world’s largest retailer by market capitalisation, simultaneously achieving annual revenues of more than £100 billion for the first time. Specifically, Amazon’s annual revenue hit $107 billion in 2015, up 20% year-on-year, surpassing the $100 billion mark for the first time. Of this, 93% of revenue and 82% of the growth came from retail. Globally, Amazon reached more than 300 million active retail customers in 2015, up 50 million year-on-year.
Significantly, Ampere calculated that to cover a $1 billion content bill, Amazon would need to add just seven to eight million new Prime customers. Yet perhaps of more interest, in the long term at least, Ampere believes that the recent launch of the Streaming Partner Program (SPP) in the US suggests Amazon is looking further, eyeing the international pay-TV market. Launched in the US in December 2015, the SPP makes third-party services available to subscribers, who can add them to their existing Prime package for a further monthly fee.
On average, Amazon made $326 in retail revenue from each customer in 2015 but Amazon Prime customers spent almost double this. Ampere estimates that Prime subscribers spent as much as $39 billion after sales tax in 2015. This represents an average of nearly $600 per customer each year. Moreover, by Ampere’s estimates, there are now 60–70 million Prime subscribers worldwide. Together, they are responsible for more than one third of inbound spend on Amazon’s retail business.
Ampere suggests that as a result of its success at retail, Amazon can extensively subsidise content acquisition by up to $130 per new or retained Prime customer each year. And the better the content, the stronger Amazon Prime’s appeal to new subscribers. This would mean that if the company wanted to spend $1 billion in a year on acquiring video content, the impact would be neutral on Amazon’s retail operating income, providing it could upgrade an additional seven to eight million customers to Prime. The near $2 billion that Ampere estimates Amazon spent on video content last year would have only required 15 million Prime upgrades and/or retentions to justify.
Ampere sees this content spend is crucial to driving growth. In 2015, Amazon’s retail revenues grew by nearly $15bn. It estimates that nearly $12 billion of this came from Amazon Prime customers, and that as much as two-fifths of Amazon’s retail growth in 2015 can be attributed to incremental spend – consumers upgrading to Prime and spending more with Amazon than they did previously.
“Amazon is known for eschewing shorter term shareholder desires for profitability, to focus on investing to improve the longer term business position,” explained Ampere Analysis director Richard Broughton. “Its backing of Prime, launched in 2005, is paying off. Simply put, Amazon can justify spending on content that supports adding and retaining Prime subscriptions because these customers spend over twice as much on other items.
“The significance of the SPP goes far beyond the retail uplift incentives that the core Prime offer drives. At Ampere, we see it as an early à la carte next-generation pay-TV offer. New services are being added regularly, and we believe it is only a matter of time before these are bundled into larger and more expensive packages – akin to traditional pay-TV tiers. So while Prime allows Amazon to subsidise content acquisition, the retailer is also slowly building out what could very well be the template for future pay-TV services.”
Editor
| 07 June 2016
To compete better against online video rivals, Amazon can use content to persuade customers to sign up to its Prime service and offset the costs against the increased amounts that customers spend on shopping.
Ampere Amazon 7 June 2016This is the standout finding of research from Ampere Analysis on purchasing products which believes that fundamentally Amazon’s consistent annual growth, solid market position, firm focus on the future, and extensive infrastructure make it a formidable player.
The analyst noted that in 2015 Amazon became the world’s largest retailer by market capitalisation, simultaneously achieving annual revenues of more than £100 billion for the first time. Specifically, Amazon’s annual revenue hit $107 billion in 2015, up 20% year-on-year, surpassing the $100 billion mark for the first time. Of this, 93% of revenue and 82% of the growth came from retail. Globally, Amazon reached more than 300 million active retail customers in 2015, up 50 million year-on-year.
Significantly, Ampere calculated that to cover a $1 billion content bill, Amazon would need to add just seven to eight million new Prime customers. Yet perhaps of more interest, in the long term at least, Ampere believes that the recent launch of the Streaming Partner Program (SPP) in the US suggests Amazon is looking further, eyeing the international pay-TV market. Launched in the US in December 2015, the SPP makes third-party services available to subscribers, who can add them to their existing Prime package for a further monthly fee.
On average, Amazon made $326 in retail revenue from each customer in 2015 but Amazon Prime customers spent almost double this. Ampere estimates that Prime subscribers spent as much as $39 billion after sales tax in 2015. This represents an average of nearly $600 per customer each year. Moreover, by Ampere’s estimates, there are now 60–70 million Prime subscribers worldwide. Together, they are responsible for more than one third of inbound spend on Amazon’s retail business.
Ampere suggests that as a result of its success at retail, Amazon can extensively subsidise content acquisition by up to $130 per new or retained Prime customer each year. And the better the content, the stronger Amazon Prime’s appeal to new subscribers. This would mean that if the company wanted to spend $1 billion in a year on acquiring video content, the impact would be neutral on Amazon’s retail operating income, providing it could upgrade an additional seven to eight million customers to Prime. The near $2 billion that Ampere estimates Amazon spent on video content last year would have only required 15 million Prime upgrades and/or retentions to justify.
Ampere sees this content spend is crucial to driving growth. In 2015, Amazon’s retail revenues grew by nearly $15bn. It estimates that nearly $12 billion of this came from Amazon Prime customers, and that as much as two-fifths of Amazon’s retail growth in 2015 can be attributed to incremental spend – consumers upgrading to Prime and spending more with Amazon than they did previously.
“Amazon is known for eschewing shorter term shareholder desires for profitability, to focus on investing to improve the longer term business position,” explained Ampere Analysis director Richard Broughton. “Its backing of Prime, launched in 2005, is paying off. Simply put, Amazon can justify spending on content that supports adding and retaining Prime subscriptions because these customers spend over twice as much on other items.
“The significance of the SPP goes far beyond the retail uplift incentives that the core Prime offer drives. At Ampere, we see it as an early à la carte next-generation pay-TV offer. New services are being added regularly, and we believe it is only a matter of time before these are bundled into larger and more expensive packages – akin to traditional pay-TV tiers. So while Prime allows Amazon to subsidise content acquisition, the retailer is also slowly building out what could very well be the template for future pay-TV services.”
