Amazon (NASDAQ:AMZN) recently gave investors a glimpse at how many Prime members are streaming films and series through Prime Video. Hint: It's a lot.
CEO Jeff Bezos said 175 million Prime members streamed video in 2020. Total Prime members just surpassed 200 million earlier this year.
The level of Prime Video adoption and engagement among members bodes extremely well for the growth of Prime and Amazon's continued dominance of online retail.
Growing Prime Video viewership
Amazon says total Prime Video streaming hours increased 70% year over year in 2020. Perhaps more impressive, though, is looking at the progress of Prime Video engagement over the last few years.
Internal documents leaked to Reuters in early 2018 found just 26 million Americans used the video-streaming service included with their Prime membership in 2017. At that point, Amazon had only just started offering Prime Video globally. Previously, it only included Prime Video in the U.S., U.K., Japan, Germany, and Austria.
Additionally, estimates indicate that only about half of Prime members used Prime Video in 2019. Today, that number is closer to seven out of every eight.
The coronavirus pandemic was a big catalyst for engagement with Prime Video. Consumers experiencing Netflix fatigue may have activated their Prime Video account for the first time just to see what else is available without paying for another streaming service. And it's likely they were quite pleased with what they found.
Amazon increased its content investments considerably last year. The company's total video and music content expense grew to $11 billion in 2020, up from $7.8 billion in 2019. Amazon had planned increases in spending for its original films and series, as well as licensed content. It also took advantage of opportunities with theater closures to buy the rights to other studios' films. The company's video and music content expense grew another 25% year over year in the first quarter of 2021 to $3 billion.
So people started paying attention to Prime just as Amazon was stepping up its content investments. That bodes well for continued engagement with the service post-pandemic, even when we have more options for entertainment.
Keeping members subscribed and bringing in new ones
Prime adoption accelerated in 2020, as store closures led people to order more items online. Amazon is already a dominant force in online shopping, and its Prime membership program ensures it stays at the top of the pack.
The increased engagement with Prime Video is a great tool for retaining subscribers. "We look at Prime Video as a component of the broader Prime membership and making sure it's driving adoption and retention as it is," head of Amazon investor relations Dave Fildes said during the company's first-quarter earnings call. "Members who watch video have higher free trial conversion rates, higher renewal rates, higher overall engagement," he added.
So while the pandemic led more consumers to sign up for Prime for its shipping benefits, Prime Video will keep them subscribed for years to come. That should translate into continued strength in retail and subscription services revenue.
But Fildes also noted Prime Video can be a tool to attract subscribers in countries where Amazon isn't as dominant in e-commerce. He specifically pointed out Brazil, where the company launched Prime Video at the end of 2016 and additional Prime benefits in the fall of 2019. Video is also a key component of its strategy in India.
Greater engagement gives Amazon greater license to invest in content, creating a virtuous cycle.
Still room to improve
Even with the strong engagement Amazon saw among Prime members last year, management isn't resting on its laurels. It notably agreed to spend about $1 billion per year on the rights to Thursday Night Football. That's unique content that could prompt more members to install and explore the Prime Video app on their connected-TV devices or smartphones.
While nearly all of Amazon's members are now watching Prime Video, the expanding content library could make it a bigger customer acquisition tool for Prime than it was previously. As long as Amazon is seeing strong returns in Prime membership growth, retention, and engagement -- which investors can track via subscription services and retail revenue -- it can continue investing in content and improving the video service.