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OTT in Focus: Amazon's Tentacles Multiply in OTT

19 Dec, 2016 By: Erik Gruenwedel

With the exception of Netflix, Hulu and Amazon, in today’s over-the-top video market, the Field of Dreams baseball movie adage, “if you build it, [they] will come,” doesn’t easily translate into a sustainable subscriber base for other SVOD players.

While Netflix has tens of millions of subs, other established brands and start-up SVOD services have minor subscription bases (less than 1 million), with traditional marketing not enough to reach an increasingly fragmented entertainment market.

Enter Amazon Channels.

Launched Dec. 8, 2015, by Amazon as the “Streaming Partners Program,” the platform affords third-party SVOD services a way (for a fee and/or revenue-sharing agreement) to market to Prime shipping members.

“We’re making it easy for video providers to reach highly engaged Prime members, many of whom are already frequent streamers, and we’re making it easier for viewers to watch their favorite shows and channels,” Michael Paull, VP of digital video, said at launch.

Amazon Prime offers free shipping for a $99 annual fee in addition to access to a the Amazon streaming digital service at no extra charge. Those customers are a potential gold mine for SVOD services looking to reach new subscribers.

To date, Amazon Channels has grown to 100 third-party SVOD services, including HBO Now, Showtime, Starz, Sundance, PBS, History and Lifetime.

“By marrying Showtime with the powerhouse retail capabilities of Amazon, we continue to greatly expand our footprint,” said David Nevins, president of the premium pay-TV channel.

For a fee and/or revenue-sharing agreement, Amazon handles all customer service, billing and related subscriber acquisition costs, while ensuring a reliable streaming infrastructure across hundreds of streaming media devices, including Amazon Fire TV. The platform offers free trials on all subscriptions; special Prime member pricing; a unified watch-list, search and browse platform across all services; the latest episodes available simultaneous with broadcast; self-service cancelation; and integrated IMDb.com functionality.

“This is a terrific product for customers to conveniently navigate their entertainment options quickly, easily and anywhere,” added Chris Albrecht, CEO of Starz.

For home entertainment distributor Cinedigm, bringing upstart proprietary SVOD services Dove Channel, Docurama and CONtv to scale quickly and economically made a deal with Amazon Channels a no-brainer, along with other distribution partnerships. The company has spent $10 million launching OTT platforms — capital investment CEO Chris McGurk believes can be cut in half utilizing Amazon Channels and other platforms.

“It really reduces our risk and opens up an opportunity to bring in many, many more subscribers,” McGurk said. “We think that’s going to really help … because again you get all the promotional and marketing spend from these giant platforms.”

With the recent additions of HBO and Cinemax to Amazon Channels, Prime members receive a 30-day free trial and then pay $14.99 for HBO and $9.99 for Cinemax per month thereafter for access to all series, original films, miniseries, sports, documentaries and specials, in addition to a wide selection of theatrical movies.

“For years now, Amazon has demonstrated an incomparable capability for bringing customers exactly what they want, in all the ways they want it,” said Sofia Chang, EVP of worldwide digital distribution and home entertainment at HBO.

Indeed, Amazon has long marketed HBO and Cinemax DVD and Blu-ray Disc releases, including “Game of Thrones,” a perennial top-selling packaged-media title.

“We have a very successful partnership with this great company that continues to evolve,” Chang said. “We share the goal of providing Amazon customers more ways to access all of the high-quality HBO and Cinemax programming they’ve been asking for.”

Sub, Tech and Data Support

For RLJ Entertainment’s Acorn TV, the British-centric SVOD service almost as old as Netflix, Amazon Channels helped increase the subscribers 17% to 375,000 in the most recent fiscal period. Sister service Urban Movie Channel (UMC) ended the same period with 17,000 subs, a 19% increase.

“Amazon is an important contributor to our subscription numbers,” said Traci Otey Blunt, EVP with UMC, adding that SVOD services are billed and serviced in-house by RLJ Entertainment.

Economics aside, Amazon Channels also affords partners technical expertise, including encoding, transaction and related IT infrastructure. In return, Amazon generates data — reams of consumer info and viewing habits the e-commerce giant and Channels members can slice and dice for marketing and advertising purposes.

“The more programming that is in our ecosystem, the more time people will spend on the app,” Paull told attendees earlier this year in a keynote address at the National Association of Broadcasters (NAB) confab in New York. “In my mind, once you have the consumer, even if the intent is ‘I’m going to binge-watch this show and exit,’ if you use the data to present other shows that they want to watch, they’ll stay. I think as programmers, our job is to make sure that people are getting value for the money they are spending and my experience has been if you treat your customers well, if you provide great value, they will stay with you.”

Playing host to third-party SVOD services might seem at odds with Amazon’s aim to widen appeal (and content spending) for its own streaming service. But then thinking outside the box is why subsidiary Amazon Web Services handles some of Netflix’s backend cloud requirements.

Facilitating platforms such as Amazon Channels expands the Amazon brand while laying the foundation for where the pay-TV ecosystem is heading.

“I actually think Amazon is taking baby steps to become a [virtual pay-TV operator],” said Michael Pachter, senior media analyst with Wedbush Securities in Los Angeles. “It is negotiating for live sports rights, offering premium cable channels, licensed and original content. The next step is to add broadcast channels.”

The analyst contends that while most content owners are trying to preserve the cable model, most also recognize there are a growing number of consumers who have cut the pay-TV cord, and Amazon is trying to find ways to reach that market through platforms such as Amazon Channels.
“Amazon appears intent upon being a participant in the evolving pay-TV value chain,” Pachter said.

Going Global

Amazon Dec. 14 announced it is making Prime Video available to consumers in more than 200 countries and territories worldwide at an introductory price of $2.99 (or €2.99) per month for the first six months following a free seven-day trial. The price point is significantly less than the global fees of Netflix, which start at $8.99; the SVOD pioneer launched worldwide access in January. Prime Video heretofore (except in the United States) was only available as part of the Prime two-day shipping membership in the United Kingdom, Canada, France, India, Spain, Austria and Germany.

In addition to myriad licensed movies and TV shows, Prime Video subs have access to “The Grand Tour,” starring former “Top Gear” hosts Jeremy Clarkson, Richard Hammond and James May, and award-winning Amazon Original Series such as “The Man in the High Castle,” “Transparent,” “Mozart in the Jungle” and “Tumble Leaf.”

Members can stream Prime Video in English, with French, Italian, Portuguese and Spanish subtitled and dubbed versions also available. The Prime Video app is available on Android and iOS phones and tablets, Fire Tablets, LG and Samsung Smart TVs or online at PrimeVideo.com. Members can also download all movies and TV shows for offline viewing — watching on a plane and train at no additional cost.

OTT’s Double-Edged Sword

Not all media companies are willing to partner with the Amazon goliath. OTT is a double-edged sword to established businesses. It offers a new way to reach audiences, but it also threatens a legacy revenue model.

Since his appointment as CEO of 21st Century Fox, James Murdoch has made no secret of his affinity for direct-to-consumer video distribution. Speaking Dec. 5 at the 44th UBS Global Media & Communication confab in New York, Murdoch reiterated his love of OTT while admitting the business model remains a challenge to a mass-media distributor.

“We have to be a little bit careful that we don’t fragment the business too much,” he said, underscoring the reality Fox is not an ISP, and thus is unable to recapture lost pay-TV revenue the way AT&T, Charter, Verizon, Comcast and others can. The executive said that with OTT video giving Fox better analysis of its consumers, making the business model work is “super hard.” Thus, Fox eschews Amazon Channels for nascent OTT ventures, focusing instead on growing Hulu subscribers (about 25% of Netflix’s domestic tally) via traditional marketing, while also readying an online TV component of Hulu for launch in early 2017. Indeed, as co-owner (with Disney, Comcast and Time Warner) and managing partner of Hulu, Fox is following a mandate from James’ father, Rupert Murdoch, to establish a legitimate OTT contender to Netflix and Prime Video.

“We are monetizing our content in exactly the same way [with OTT] … we are with traditional multichannel video program distributors,” Murdoch said on a November fiscal call.

The executive believes streaming video represents a “more fluid” opportunity to understand the consumer.

“The streaming environment is a better environment for consumers in terms of user experience for scripted programming, and also really a better business environment for us in terms of monetization,” he said.

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