Amazon CEO Jeff Bezos loves Prime Video, and the reason should scare Netflix.
This week at Vox’s Code Conference, Bezos outlined why he thinks Prime Video is a good business for Amazon. Having a subscription video section of Amazon Prime makes people more likely to both convert from Prime “free trial” users to paying ones, and to renew their Prime subscription when it ends, Bezos said.
In short: having subscription video means more Prime users. And Prime users are more valuable customers for Amazon.
“We get to monetise [our subscription video] in a very unusual way,” Bezos explained. “When we win a Golden Globe, it helps us sell more shoes. And it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non-Prime members, and one of the reasons they do that is once they pay their annual fee, they’re looking around to see ‘how can I get more value out of the program.’ And so they look across more categories they shop more. A lot of their behaviours change in ways that are very attractive to us as a business. And the customers utilise more of our services.”
This fact gives Amazon an advantage over competitors like Netflix, Hulu, and HBO, who are trying to use premium video to make money directly — not using it to sell more shoes. They are bidding against Amazon for the same shows, and chasing the same customers, but Amazon doesn’t have to sweat the margins.
“Because we have this unusual way to monetise the premium content, we can charge less for the premium content than we would otherwise have to charge, if we didn’t have the flywheel spinning to help sell more shoes,” Bezos said.
And Amazon isn’t going to take its foot off the gas pedal when it comes to premium video. Bezos said that Amazon Studios, the company’s original video arm, could potentially be the “fourth pillar” of its entire business (after retail, Prime as a whole, and Amazon Web Services). Analysts at Bernstein estimate that Amazon spent $2 billion on video content for Prime in 2015.
Bezos, for his part, doesn’t believe that Netflix and Amazon are competitors. “I think people are going to subscribe to both,” he said (and there is some evidence he is right). But even he admits they compete on the “supply side,” by bidding on the same shows and movies.
And even if you believe there is enough room in the world for Amazon and Netflix, and Hulu, and HBO Now, and Starz, and Showtime, and Seeso, and whatever other streaming service will be announced tomorrow, Bezos’ obvious enthusiasm for the side benefits of subscription video cannot be welcome news for his competitors.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.