Reports indicate that the chief executive officer of Amazon, Jeff Bezos, wants the online retailer’s original programming division, Amazon Studios, strategically overhauled. This has seen shows such as The Last Tycoon and Z: The Beginning of Everything cancelled. Both shows were based on the life of legendary American writer F. Scott Fitzgerald.
According to the reports Bezos has instructed the original programming division to work on a show that will reach the same kind of commercial and critical success as HBO’s Game of Thrones.
“It’s pretty evident that it takes big shows to move the needle.” Roy price, the chief of Amazon Studios, said.
Not so easy
However this is not something that can be easily replicated as has been proven by the experience of Netflix with Marco Polo. The online video streaming giant assumed it had found its own globally popular hit with Marco Polo but that was not to be and the show was cancelled after two seasons.
As Amazon Studios takes a new direction strategically, the division is also facing financial constraints. Currently Amazon’s annual budget for original video content is $4.5 billion. This is less than Netflix’s budget of $6 billion but higher than Time Warner’s budget of $2.5 billion. Time Warner is the parent company of HBO.
Unlike HBO or Netflix though, Amazon Studios does not charge a direct fee as it is available to all subscribers of Amazon Prime, a loyalty program. According to Bezos, the business model of Prime involves selling more products whenever it wins a big award such as a Golden Globe. This is because the free video content is meant to lure more shoppers to join Amazon’s loyalty program and thus encourage them to spend more since they also get a free 2-day shipping service.
While Amazon doesn’t reveal how many people have signed up for a Prime membership, it discloses revenues obtained from subscriptions. In the course of the last one year that figure was $7.8 billion. Since the annual fee of an Amazon Prime subscription is $99, it translates to about 78 million members. Because Amazon’s budget for original video is $4.5 billion, it means that more than 50% of the money from Amazon Prime subscriptions were consumed by video content. This is despite the fact that Prime is designed to fund the free 2-day shipping.
In the course of the next one year net shipping costs for the online retailer were around $8 billion. This translates to mean that Prime is not able to meet the shipping costs which was the intended principal benefit. It also means that Amazon’s video budget is overstretched.