Amazon (AMZN 0.54%) is getting more out of its Prime Video content budget than its biggest competitors.
The company has been breaking out its video and music content expense in its quarterly reports since 2019. That number grew to $16.6 billion in 2022, but it includes spending on Prime Video, Music Unlimited royalties, digital subscriptions like Prime Channels, and digital purchases and rentals.
CFO Brian Olsavsky pointed out that spending on Prime Video alone totaled just $7 billion for the year during Amazon's fourth-quarter earnings call. That's far less than what analysts had projected based on Amazon's previous disclosures. It's also much less than its biggest streaming rival Netflix, which spent $14 billion on content in 2022.
Amazon's efficiency in content spending should prove valuable as other streaming services cut back. Let's see why.
Keeping Prime members engaged
Amazon says its big bets on streaming have paid off in higher engagement and better customer acquisition.
Amazon added two big new properties to Prime Video in 2022: Thursday Night Football and Lord of the Rings: Rings of Power. Olsavsky said both premieres last fall drove record signups for Prime. "Investments like that will help with not only a new member or new Prime member acquisition, but also retention," he added.
Indeed, Amazon showed strong Prime membership retention during a time when stand-alone streaming services like Netflix saw increased churn rates. As a result, it topped the charts as the most popular subscription video on demand service in the U.S. last year, according to Park Associates.
And it's doing it with a budget of just $7 billion. That's less than half of Netflix's content expense and below Walt Disney's total outlay on streaming as well. Disney spent $14 billion on content across its three streaming apps in 2022.
Amazon is extremely efficient with its content spending. Even if it doesn't have the same level of view time as competitors like Netflix or Disney, it's doing enough to keep subscribers month after month and year after year.
Translating Prime memberships into sales
Amazon isn't in the business of selling video streaming; it makes money when you buy items on its marketplace.
To that end, video is doing a good job of getting Prime members to buy more stuff. The more people watch Prime Video, the more they actually use the Prime shipping benefits. "We see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website," Olsavsky told analysts.
That means Amazon can use video as a lever to grow sales on its e-commerce website. More and better content means more Prime members with greater engagement, which should translate into more marketplace sales.
While there are limits to its effectiveness, the fourth-quarter results suggest there's still room to improve sales through Prime engagement. Amazon's online store sales fell 2% year over year last quarter, which was better than expected. Third-party seller services and advertising bolstered overall revenue growth, both of which are tied to activity on its marketplace.
Amazon could continue to increase its content spending for Prime Video and produce strong results for the overall business. And with many competitors pulling back on spending, it could present opportunities for Amazon to snatch up some coveted titles.
