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Amazon Seeing Dividends From Risk-Averse Content Strategy

5 Jul, 2017 By: Erik Gruenwedel

Amazon, Netflix and Hulu are spending billions creating original content, including feature-length movies. While Netflix increases cancellations of original programming in response to CEO Reed Hastings’ desire to up experimentation on programing, Amazon is approaching original content more cautiously, albeit with greater results.

Amazon fared better than Netflix at the 2017 Golden Globe awards as well as the Academy Awards despite Netflix’s dominance in volume of original content — 54 Emmy nominations compared with 16 noms for Amazon.

Amazon is not yet competing with Netflix on volume, but its original content — especially movies — is of higher average quality, according to Michael Pachter, media analyst at Wedbush Securities.

Following the critically-acclaimed Beasts of No Nation, Netflix’s successive feature films (released concurrently in streaming) have generated lower reviews on Metacritic (from the 40s). Amazon movies have fared better, with Manchester by the Sea winning numerous awards, including two Oscars.

“We believe Amazon’s approach demonstrates a more calculated and balanced strategy. Amazon is capitalizing on its strong user engagement (users are used to rating products on its site) by allowing users to rate pilot episodes before greenlighting shows to full seasons,” Pachter wrote in a July 5 note.

The analyst — a longtime Netflix bear — contends the SVOD pioneer’s exorbitant spending on original programming (reported $120 million on Baz Luhrmann’s short-lived “The Get Down”) reflects an unsustainable pace of cost escalation and an unsustainable method of content purchasing.

“Should this continue with other Netflix original series in the future, it is likely to keep the company from achieving ‘economic’ profitability (that is, positive free cash flow) for the next several years,” Pachter wrote.

Regardless, both Amazon and Netflix were big spenders at Sundance this year. Netflix acquired Mudbound, a drama starring Carey Mulligan and Mary J. Blige set for a limited theatrical release. Netflix reportedly paid $12.5 million for this film, while Amazon reportedly paid $12 million for The Big Sick, a Judd Apatow dramatic comedy.

While Amazon’s success with Manchester by the Sea seems to justify the spending, Pachter doubts it is sustainable long term.

Indeed, prior to Sundance, Amazon announced a program via Amazon Video Direct in which smaller film festival entries could receive guaranteed money up front ($25,000 to $100,000) in exchange for giving Amazon exclusive SVOD rights.

Films in the program receive $0.30 per hour when viewed domestically and $0.12 per hour viewed outside of the U.S.

“Obviously, this applied to the smaller films for which the larger studios did not bid, and as expected Amazon Studios was still an active participant in the bidding war for potential Oscar-contenders,” Pachter wrote.

About the Author: Erik Gruenwedel

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