We hear a lot about Netflix, dominating the streaming market. But there is one big player out there gobbling up market share, Amazon Prime Video.
In August 2019, eMarketer reported that Netflix was losing market share in the United States. In the US 55.3% of the population consumed content through subscription services. Rivals like Hule and Amazon Prime Video are slowly gaining in on Netflix. The latter still had a whopping 158.8 million viewers in the United States, Hulu was estimated to reach 75.8 million viewers in 2019, growing to a market share of 41.5%. Admittedly, I’m surprised by the amount of market share that Hulu was able to attract to its platform. Amazon, is the second largest in the US with 96.5 million subscribers. But is this enough for Amazon to get to the number 1 spot in the foreseeable future within the video streaming market?
The e-commerce giant enters the ring
Amazon playing around in the streaming market is not a recent development. Back in 2011 Amazon launched its Prime Instant Video service for paid Prime subscribers. The service launched with 5,000 shows such as movies and TV series which according to Engadget, ‘will look awfully familiar if you’re also a Netflix subscriber.’
The growth of subscribers didn’t come by itself and by releasing a few press releases here and there.
Five years later, on the 16th of December, Amazon proudly announced that its Amazon Prime Video service was available in more than 200 countries. Amazon really pushed one of its most popular shows in the press release. A show which has to draw in customers still wondering whether they should jump in for the ride, ‘The Grand Tour’ with Jeremy Clarkson. The show is a spiritual successor to the insanely popular BBC Show Top Gear. Tim Leslie, Vice President, International for Prime Video said, ‘Amazon Prime Video members around the world can now enjoy The Grand Tour, the biggest show premiere ever on Prime Video, multi Golden Globe, Emmy, and BAFTA Award-winning Transparent, the multi Golden Globe Award-winning series Mozart in the Jungle and one of the most-streamed Amazon Original Series ever by Amazon Prime members globally, The Man in the High Castle.’
In 2017 Amazon expanded its Amazon Channels program to the United Kingdom and Germany to gain momentum with paid television viewers. The channels line-up includes nearly 50 live and on-demand channels. This was two years after the announcement of its then so-called ‘Streaming Partners Program’, which included paid television networks such as Showtime, Starz, AMC and many more available to its premium Prime members.
Techcrunch noted that, ‘Amazon is not always thought of as the most groundbreaking of businesses when it comes to new tech and new services, and in this case it’s also wading into the cord cutting market not as an early mover, but possibly doing it just as it’s gaining momentum among a wider and more critical mass of consumers more interested in streaming.’ So even if Amazon is not the first, it’s a strategic move that cannot be understated. As more and more consumers are moving to, or considering streaming services, Amazon will offer an interesting alternative not only for consumers but also for content providers, who see their user count decrease, in favor of services like Netflix and Amazon Prime Video. It’s a self fulfilling prophecy.
The growth of subscribers didn’t come by itself and by releasing a few press releases here and there. Marketing Dive noted that Amazon had quadrupled its digital media spending, overtaking its main competitor Netflix in the first half of 2019. According to the website, Amazon Prime Video had launched 13 campaigns for its original shows with a flashy 60 second Super Bowl ad for the action series called Hanna. Netflix on the other hand launched 67 campaigns, but decreased its overall spending for digital, print and television. Interestingly enough it seems that the tables have turned and Amazon is gaining momentum in the content and ad space. Marketing Dive said, ‘To compete with Amazon, streaming providers may need to focus their efforts on exclusive programming that gives people a reason to subscribe. Netflix has invested heavily in original shows like “Stranger Things” and “Orange Is the New Black” and features like “Bird Box,” but reruns of classic shows also generate significant viewership.’
Netflix had House of Cards and Orange is the new Black. But Amazon didn’t have a real hit series which could lure in fans from a particular franchise to the service.
In march of 2019 CNBC reported how Amazon was ogling the Lord of the Rings franchise to expand its portfolio of high profile franchises. Competitors of Amazon like HBO had Game of Thrones, which was a major selling point for the platform. Netflix had House of Cards and Orange is the new Black. But Amazon didn’t have a real hit series which could lure in fans from a particular franchise to the service. Sure, it had the Grand Tour, but that was a new franchise with a familiar cast, which mostly spoke to fans of Top Gear. Amazon therefore forked out $250 million for the rights to the Lord of the Rings. It’s ability to combine books, commerce and content convinced the IP holders to allocate their product with the ecommerce giant. Although the move raised some eyebrows in the world of entertainment with CNBC saying, ‘The huge investment in a TV series has made Hollywood wonder just how much Bezos will spend on content.’ I can imagine it makes established content creators wary of where the streaming market is heading and how it may impact future productions.
In the same year, in August 2019, Amazon, together with the New York Yankees and Sinclair Broadcast Group, acquired an 80% stake in the Yes Network. From a non-sports outsider, the move might not ring any bells immediately. But it’s an important addition to strengthen the streaming product. The stake was purchased from Disney, who also owned ESPN. While not taking a deep dive into the sports network acquisition itself, it revealed that Amazon was looking at different parts of the entertainment ecosystem to further branch out its portfolio into different genres, possibly attracting new consumers to Amazon Prime Video.
All the previous might make it seem that Amazon is creating a monopoly through a high stakes one-person chess game in the streaming market. But it’s not that competitors of Amazon are just waiting for market share to evaporate. Turning them into relics of ancient times. Netflix knows it has to go hard or go home to be able to compete with sharks entering its seas. Variety reported that Netflix would invest $17.3 billion in content creation. An uptick from the $15.3 billion the year prior. Variety estimated that rival Disney invested $27.8 in original content, which can possibly down to its streaming service Disney Plus.
A server powerhouse
While original content is a major factor in the power play that is going down in the streaming market, Amazon has an ace up its sleeve, its Amazon Web Services platform. A vast network of servers across the globe, which generated $10.81 billion in revenue in the second quarter of 2020. And you might be wondering, how does this in any shape or form contribute to the success of Amazon? That’s an interesting question with a lot of different factors that come into play.
Delivering content consistently across the globe to large audiences is a major challenge. It’s expensive and internet infrastructure ranges widely per country. Scaling through partners can also be challenging as they have to be carefully selected. They have to be able to handle a lot of multiple connections at the same time. Serving low resolution content or frame drops at higher resolutions is a no-go when a competitor can deliver crisp video without buffering. Amazon does not have that problem. Where competitors might have to rent servers or build them to keep up demand, Amazon can just run its content through its own servers.
Delivering content consistently across the globe to large audiences is a major challenge. It’s expensive and internet infrastructure ranges widely per country.
The true test came when Amazon had acquired the rights to stream the NFL Thursday Night Football in over 200 countries. For the fan, being engaged in real time is everything. In a case study conducted by Amazon, they found their server infrastructure was able to deliver a ‘solid streaming experience’ to 18 million Football fans. BA Winston, Global Head of Digital Video Playback and Delivery at Amazon Video said, ‘We provided a highly redundant, low-latency, scalable, live sports-streaming solution to NFL fans all over the world because of the elasticity and flexibility of AWS.’ Any self respecting streaming provider has to ensure that servers can handle the enormous amounts of people tuning in at the same time for the live event, compared to a regular movie watcher who can drop in and drop out for their favorite movie at any time. Amazon elaborated by saying that the Football event was watched on a multitude of devices such as televisions, gaming consoles, mobile devices, set-top boxes and other connected devices with viewers watching on average for 63 minutes.
Obviously this case study is a sales-pitch to potential customers, displaying how well Amazon Web Services can perform during peak activity across the globe, it shows how difficult it is to sync so many viewers at the same time across the world. Amazon’s infrastructure needs to be reliable and fast enough to handle all the requests coming in from a wide variety of devices with their specific pros and cons. It’s therefore tempting to take an even further look in how the server architecture works, but that’s not for this marketing case study. It shows that there comes into play than just being able to acquire licenses and getting consumers to add yet another subscription service.
For the attentive reader, there’s also an interesting business model that’s coming into play for the e-commerce giant. Amazon can use its servers for multiple business models. A hosting company only hosts websites and Netflix only streams content. There is no additional product that generates revenue. Yet Amazon can do both. Cater to corporate business clients and at the same time large amounts of consumers. It doesn’t get more durable than that.
Amazon pockets are lined with cash
Netflix may be big, but it doesn’t mean it has a monopoly in the streaming market. In another article I’ve written that Disney+ was able to even beat its own expectations when it came down to acquiring new customers to its streaming service. Amazon has been going hard with the ad spending and adding new franchises to its portfolio. It has localized paid TV in strategic regions, offering content for not only ‘cable cutters’, but also on-demand streaming content that subscribers of other services love so much.
With Amazon’s state of the art server infrastructure it has full control over delivering its content across the globe. It is not dependent on streaming services to maintain its overhead costs, nor the other way around. And if we’ve learned one thing from Amazon over the years, it has the stamina to beat its competition and with more money pouring into its bank account in greater amounts than ever before, it can wait until every last competitor has burned all its cash to stay afloat.