Jake Hanley canceled his Netflix subscription last year after his favorite shows, “King of the Hill” and “30 Rock,” were removed from the service. The 22-year-old office assistant from San Jose exclusively uses Amazon Prime Video for his streaming needs now.
“I think Amazon Prime is better for its lower rate and better selection of movies, along with some nice leftovers from HBO and Showtime,” Hanley said.
Even while losing customers like Hanley, Netflix dominates the field of streaming video in the US. Amazon Prime Video is firmly in second place, but the online retailer cannot settle for the silver medal in the video-streaming race. Other competitors like Hulu are gaining ground. And media giant Disney, which is buying 21st Century Fox’s assets for a whopping $52.4 billion, is entering the space with a streaming service that will include its popular franchises like Star Wars and Marvel for less than the cost of Netflix. It’s time for Amazon to take its streaming service to the next level before it falls behind.
Amazon has to spend more money on similarly well-known content and content creators to win over more viewers like Hanley. Spending more on familiar programming will help spread the word about the video service, especially to those who already have it.
This year, chief executive Jeff Bezos told former Amazon Studios president Roy Price to, “bring me my ‘Game of Thrones,” Price said during an interview with Variety in September, before he resigned over sexual-misconduct allegations.
That’s when Amazon made use of the vast amount of capital it had to spend somewhere in the park of $250 million for the TV rights to “The Lord of the Rings.” Similar exclusive deals have been made with Robert Kirkman, the creator of “The Walking Dead,” and Justin Doble, the writer and producer for Netflix’s “Stranger Things.”
Amazon has two advantages over its larger rival, Netflix. It has a lot of money to spend on content as shown with “The Lord of the Rings” deal. It also doesn’t need to make a profit from the streaming service alone. Instead, the Seattle-based retail giant has to make the video service worthwhile to its millions of Amazon Prime members, who get it with their subscriptions. Prime costs $99 a year in the U.S. and includes free shipping for products sold by Amazon, along with audio and video streaming, among other perks.
“Amazon is investing in video to drive Prime benefits and help to grow the membership base,” said Rob Sanderson, managing director and senior research analyst for MKM Partners.
Amazon Prime members are the core of the company’s retail sales, which have risen around 20 percent each year since 2011 when Prime Video was introduced.
A survey in 2015 showed Amazon Prime members spend an average of $1,500 a year while non-members spend around $625. Keeping these numbers growing is vital to the future of Amazon.
“They are worth a ton,” said Michael Pachter, managing director of equity research at Wedbush Securities, of Amazon Prime members. “85 million members who buy around half of everything sold on Amazon.”
It was 2006 when Amazon first started experimenting with video. Known then as Amazon Unbox, the service worked more like iTunes by offering customers the option to buy or rent digital copies of TV shows and movies for a fee. In 2011, Amazon added titles to stream that were included with a Prime membership, alongside the ability to purchase movies and TV shows. This made the membership more valuable as it included more than two-day shipping, even if subscribers didn’t watch all the programming. It included award-winning shows like “Transparent,” which only 40% of Prime members watched when it won its first award in 2015.
With the video-streaming service came a change of competitors for Amazon. Instead of trying to outdo digital-video stores like iTunes or Vudu, Amazon focused on the leader of subscription–video streaming, Netflix.
Amazon Prime’s subscriber base has been inching up on Netflix’s, which had a reported 109 million members worldwide as of October.
But Amazon users do not watch as much as their Netflix counterparts. Pachter estimated that Amazon viewers watched 25% the amount of time that Netflix users watch.
And while Amazon is the top choice for teens when it comes to shopping, those same teens prefer to watch videos on Netflix, YouTube, and Hulu, over Amazon Prime Video, research firm Piper Jaffray found in fall 2017 survey. Only three percent of respondents watched the service and that number remained unchanged for the past two years. That should be a wake-up call for Amazon since the majority of teenagers get their entertainment from online services and are early adopters of new services and technology.
Even with award-winning shows like “Transparent,” Amazon Prime Video’s content lacks the water-cooler buzz Netflix has. Shows like “House of Cards,” “Orange is the New Black,” and the Marvel series have a passionate following online that get people excited to watch. Amazon’s fanbases don’t compare.
Right now, Amazon spends less on content than Netflix, and that’s where it things need to change.
“Amazon’s spending is around $4.5 billion this year compared to Netflix’s $7 billion,” Pachter said. “On an apples-to-apples basis, Amazon is spending 75% as much. Next year, that will be 80% as much, then 85%, 90%, 95% and 100%. They’ll catch up in five years.”
“Man in the High Castle” was Amazon’s number one show during the third quarter of 2017, but still trailed behind Netflix’s popular shows like “Marvel’s The Punisher,” “Orange is the New Black,” and “Black Mirror,” according to Parrot Analytics, a company that makes use of various data such as social-media mentions and piracy stats to determine the popularity of shows on streaming-video services.
“The challenge is branding,” said Sam Sadler, vice president of marketing for Parrot Analytics. “Amazon Prime Video is not clearcut. They have to work a lot harder to overcome their position. I could see them pass Netflix in five years.”
For many Amazon Prime subscribers, the most important perk of the service is still two-day free shipping. With 90 million Prime subscribers, and growing, the amount of viewing hours for Amazon Prime Video should be higher than it currently is in comparison to Netflix. A lack of content from known creators or franchises hurts the branding for the service to where people who have in included with their Prime subscription do not take advantage of it.
Sadler said that the upcoming Amazon original series, “Philip K. Dick’s Electric Dreams,” has a lot of buzz online even without a big marketing push. This is the kind of content that could change the perception of Amazon Prime Video in 2018. It comes from a well-known source material, “Do Androids Dream of Electric Sheep,” which was the book the movie “Blade Runner” was based on. The show is also helped by the popularity of the movie sequel, “Blade Runner 2049,” that was a big hit with critics and moviegoers.
From what he’s seen, Sadler thinks the show could be Amazon Prime Video’s top show and crack Parrot Analytics top 10 ranking report after its debut on January 12. This series could be the game changer the company needs to conquer the video streaming service market.