The mighty Amazon.com, Inc. (NASDAQ:AMZN) has infiltrated and disrupted a number of product categories before. The company has built up a significant digital media ecosystem through marketing its shrewd acquisitions through its line of Kindle devices. Amazon just might be on its way to dominating Internet video streaming with its array of offerings, as it looks to increase sales fromdigital media content.
Amazon.com, Inc. (NASDAQ:AMZN) has a big advantage over other online companies, as it has three different services and a massive ecosystem from its existing e-Commerce users, as well as a device strategy that includes millions of tablet users to cross-sell its content.
Amazon.com, Inc. (NASDAQ:AMZN)‘s wide array of Internet video services includes Amazon.com, Inc. (NASDAQ:AMZN) Prime, which is the firm’s 2 day shipping service, combined with unlimited video streaming, as well as the lending of eBooks. Amazon.com, Inc. (NASDAQ:AMZN) also offers video-on-demand services through Amazon Instant Video and LOVEFiLM.
One of the major bright spots of Amazon’s Instant Video is the showing of newer TV Shows and movies that are relatively recent, compared to other competitors. Using Amazon’s IMDB as a marketing medium, the company fills a gaping hole that other leading competitors like Netflix, Inc. (NASDAQ:NFLX) are unable to do. For example, a majority of Netflix, Inc. (NASDAQ:NFLX)‘s content is older than one year, which is a great plus for Amazon’s Instant Video service. Streaming shows that are barely one week old is a great value proposition for Amazon Instant Video and its rival Hulu.
However, usage of Amazon’s video offerings is not as smooth and can be confusing, as it offers quite a combination of videos and lists them all together. On the other hand, Amazon’s biggest rival in Internet TV, Netflix, Inc. (NASDAQ:NFLX), has a much smoother and easier to navigate user interface. Amazon’s content collection of roughly 38,000 titles is also much smaller than Netflix’s content base of more than an estimated 60,000 titles.
In addition, Amazon.com, Inc. (NASDAQ:AMZN)‘s international streaming subsidiary, LOVEFiLM, was acquired by the company in early 2011. LOVEFiLM has a strong presence in the European market, with more than 2 million members across the UK, Germany, Denmark, etc. Lovefilm has DVD offerings as well as an online streaming service, and boasts of more than 70,000 titles. Amazon doesn’t disclose the number of subscribers of its Prime and Instant services, but it is widely expected to fall in the 5-10 million range.
Amazon’s CFO has acknowledged that Amazon.com, Inc. (NASDAQ:AMZN) is investing heavily for the acquisition of video content through its LOVEFiLM business unit for the European market. Lovefilm is still slightly behind Netflix in terms of viewing and content library, in spite of similar pricing and a much earlier start than Netflix, Inc. (NASDAQ:NFLX).
The on-demand marketplace is much more crowded compared to the monthly subscription-based all-you-can-eat model of streaming. Cable firms are very dominant in the video-on-demand space. Consumers spent more than $1.3 billion for movies and other TV shows from their pay TV service, according to areport from NPD Group.
Cable companies like Time Warner and Comcast control roughly 56% of the VOD market, and satellite TV companies like DIRECTV and Dish Network controlled 27% of the market in 2012. This should not be surprising, because it is a lot more convenient to get a movie rental via the TV compared to switching online or ordering from a store.
However, Amazon’s direct competitors also have pretty significant content offerings in the on-demand space. Google has been increasingly ramping up its content offerings through Google Play, as well as through YouTube. Apple’s iTunes has a significant footprint in the on-demand movie category as well.
Amazon’s biggest rival in the retail space, Wal-Mart Stores, Inc. (NYSE:WMT), also has a sizable video offering in the form of its VUDU segment. Wal-Mart Stores, Inc. (NYSE:WMT) acquired the on-demand video streaming company, VUDU, in 2010, and now it boasts of having the highest number of HD movies in its catalog. However, almost certainly the video offerings of Wal-Mart Stores, Inc. (NYSE:WMT) represent a small fraction of Wal-Mart’s $443.9 billion sales. And the VUDU offering can be viewed as an add-on to the company’s rapidly expanding e-Commerce footprint. Despite its relative insignificance, VUDU can be a big threat to Amazon as Wal-Mart Stores, Inc. (NYSE:WMT) has 10,000 plus stores serving 200 million customers weekly.
Amazon’s Device Strategy: Content Marketing through Tablets and Ecosystem
With more than 200 million customer accounts, Amazon can tap into its existing user base by selling more Prime subscriptions. Also, the increased popularity of its hardware offerings will provide additional growth prospects for the company’s video content offerings as well. Amazon’s tablet devices are increasingly becoming more and more popular, as the top four best-selling items in the platform are the four Amazon Kindle devices. The company is ramping up its ecosystem further with Kindle Store expansions in countries like Canada, China and Brazil.
The percentage of Prime customers who are watching free content through the Prime Instant Video platform has increased substantially from a year ago. Also, Prime memberships have gone up dramatically on a year-over-year basis, and these consumers are watching their free content and purchasing additional digital offerings as well.
In addition, Amazon is signing video licensing agreements with big name studios like Warner Bros and Turner Broadcasting, and going forward will add original and exclusive content on both Amazon Instant Video and on Amazon Prime Video. The substantial amount of newer and exclusive content offerings should aid in getting more subscribers to the video offerings from Amazon.
Amazon even struck a content deal with Epix, which was a major supplier to Netflix. Amazon is willing to spend big money on landing content deals, as Epix’s deal with Netflix, Inc. (NASDAQ:NFLX) was costing an estimated $200 million annually.
Amazon is also producing original content, just like its video streaming rivals Hulu and Netflix. The original content strategy has worked very well for Netflix, Inc. (NASDAQ:NFLX), as its recent release was well received and generated significant public attention.
Amazon is in the process of producing numerous pilot episodes through Amazon Studios. It will take the opinions of its subscribers based on the pilot episodes, to decide whether to produce the content or not. The crowd-sourcing process might aid in determining the probability of a TV show’s success, but it might be inaccurate as well. However, original content differentiates the service from rivals like Netflix and Hulu, and the show will be available to the subscribers of Amazon only.
Amazon has stated that users are more likely to frequent its e-Commerce platform when they are enrolled members of Prime. As a result, the company can attribute some of its content costs to its online store, and add more content. Amazon gets to use its original content through three different services, and market it through its massive ecosystem and hardware devices. However, it still faces pretty stiff competition from the category leader, Netflix.
The article Will Amazon Dominate Video? originally appeared on Fool.com and is written by Ishfaque Faruk.
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