Amazon CFO: We Are Investing ‘Heavily’ in Video Content25 Oct, 2012 By: Erik Gruenwedel
If there was any doubt regarding Amazon’s resolve to combat Netflix (and Hulu Plus) in the subscription video-on-demand market, CFO Tom Szkutak made it clear the ecommerce behemoth has no qualms paying for digital content going forward.
Speaking Oct. 25 in Amazon’s third-quarter analyst call, Szkutak said since launching the Kindle Fire tablet and the Prime Instant Video service, consumers are increasing purchases of digital media, including books and video.
The CFO wouldn’t disclose what Amazon is spending on licensed content or the media purchasing patterns of consumers owning the various Kindle devices, but said the average user is proactive in purchasing digital content as well as accessing “free” video through the Prime membership.
The $79 annual Prime membership is foremost a discounted shipping service with a free SVOD platform thrown in. To date, Prime Instant Video has about 30,000 titles (mostly TV shows) members can stream on selected devices, including the TV.
“We’re seeing great new [numbers] of subscribers coming to Prime and we like what we see so far,” Szkutak said. “That’s why we continue to invest there.”
Michael Pachter, analyst with Wedbush Securities in Los Angeles, estimates Amazon will spend roughly $1 billion per year on content for Prime Instant and LoveFilm Instant in Europe, roughly half of Netflix’s total spend. However, as competition in the SVOD market intensifies and many of Netflix’s current content deals approach expiration, he expects Amazon to match or exceed the dollar amounts Netflix is offering content providers.
“Amazon’s [recent] deal with Epix makes it a serious competitor to Netflix, and we expect subsequent agreements for non-Netflix-exclusive content in the immediate future given Amazon’s cash balance and its willingness to drive long-term market share by enduring losses,” Pachter wrote in an Oct. 24 note.
Indeed, Amazon attributed the $59 million Q3 operating loss internationally to increased content spending for LoveFilm Instant, which is a direct competitor to Netflix in the United Kingdom and Ireland.
“We’re investing heavily in video content through our subsidiary LoveFilm,” Szkutak said. “We have added a lot of content and we’ll continue to monitor it very carefully. You should expect us to add more content going forward. Those are the primary drivers for what you’re seeing in operating income in Europe.”
Meanwhile, Amazon reported a third-quarter (ended Sept. 30) net loss of $274 million on revenue of $13.8 billion, compared with net income of $63 million on revenue of $10.8 billion during the same period last year.