Analysts have long suspected that Prime Video is a huge loss leader for Amazon (AMZN +0.95%). However, the company has greatly expanded its streaming business in the last few years. Here's why the company's recent ventures in the streaming market will combine to pay off in a big way.
Multiple stakes in film and TV
Amazon launched Prime Video, then Amazon Unbox, in September 2006 as a place where customers could download thousands of movies, but pivoted to streaming in 2011. The company has since sunk billions of dollars into Prime Video, spending $13 billion on movies, series, and music in 2021. Despite the streaming service's expense, Amazon has used it as an attractive addition to the company's Prime membership.
Amazon's streaming business has steadily grown to allow consumers to rent and buy content, add Amazon Channels, watch live sports, stream games, and more. For instance, Amazon launched its streamer Freevee, then IMDb Freedive, in 2019 to cash in on increasing demand for ad-supported streaming services. Few companies have diversified their footholds in the streaming industry like Amazon. The company has skillfully permeated almost every facet of the market, creating a services ecosystem that is only truly rivaled by Apple's growing services business.
Prime Video is not only home to original and licensed content, but Amazon Channels offers Prime members the unique ability to add on popular third-party channels for an additional fee. Subscribers can stream channels such as Showtime ($10.99), HBO ($14.99), Starz ($8.99), and several others. While Amazon has not reported exactly how much revenue it owes to Channels, analysts estimated the service generated $1.7 billion in 2018, more than double the previous year, and projected $3.6 billion in 2020.
Amazon has grown Prime Video into a one-stop app that members can customize and add to as they see fit. The app is no longer just a tool to attract new Prime members and add value to the subscription, but a clever way to encourage people to cut the cord and move exclusively to streaming -- through Amazon.
The power of ads
In May 2021, Amazon announced it had amassed 120 million viewers from video streaming ads on platforms such as Freevee, Twitch, and live sports. In addition to its original content and many streaming options, Amazon has substantially grown its video advertising business.
Free, ad-supported streamer Freevee has found its footing, landing on an inviting new name and reporting a viewership growth of 138% from 2020 to 2021. Additionally, the rival to Fox's Tubi and The Roku Channel plans to grow its content by 70% in 2022. Amazon has so far done this by striking a deal with NBCU for an exclusive window to stream films such as Fast & Furious 9 and Sing 2, as well as its launch of two music-themed channels from Fuse Media in June.
Amazon acquired Twitch in 2014 for an estimated $970 million. After reporting 45 million viewers in 2013, the site grew to 100 million per month in 2015. In 2022, Twitch now receives 140 million active users each month, making an estimated $2.6 billion in revenue in 2021, mostly from advertising. As of April, Amazon has considered offering incentives to Twitch streamers who run more ads and revamping the site's monetization structure to increase advertising profits.
Amazon signed a 10-year agreement with the National Football League in 2021 to exclusively broadcast 15 Thursday Night Football games annually in the U.S. The deal will kick off in 2023 on Prime Video and allow the company to run ads on one of 2020's top-rated weeknight primetime shows, reaching tens of millions of viewers through their Prime memberships.
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Key Data Points
What's next for Amazon's streaming business?
While Amazon's streaming expenses are hefty, the company's $13 billion content budget in 2021 is still significantly less than those of its competitors. Netflix's content spend in 2021 was $17 billion, while Disney plans to spend $33 billion in 2022, an $8 billion increase from 2021. Amazon has also adjusted its pricing to include content expenses, raising the price of its Prime membership from $119 to $139 a year in the U.S. It is positive that the company is regularly adjusting and updating its approach to streaming.
Along with Thursday Night Football in 2023, the company is gearing up to release the highly anticipated The Lord of the Rings: The Rings of Power in September. Prime Video is clearly expecting the show to attract significant viewing numbers, introducing a new communal watch party function to the site in early July. Amazon is massive, making it tedious to keep an eye on its multiple streaming ventures. However, taking a look at the company's soon-to-be-released second-quarter 2022 10-Q to note the net sales of its advertising services and its "Technology and Content" segment will be a great way to determine its streaming progress.
