Programming piped through the Internet isn't new, Amazon.com's (NASDAQ:AMZN) been at it for some time, offering customers its Prime service. The primary player in the world of online entertainment, Netflix (NASDAQ:NFLX) has investors gaga over its streaming content service, irrespective of its profit potential.
What makes the recent news from Amazon.com different is the announcement it intends to get into the production end of things, developing its own package of original content. Unlike its Prime service, or Netflix's streaming video purchased off the shelf, Amazon is following Google with its Hollywood-level content development on YouTube and the original programming Yahoo! offers into the untested waters of Internet program creation.
According to a report issued by IHS, Amazon will produce and offer to its customers six new, in-house produced comedies, expected to be available in December. The market for original Internet content is up for grabs, assuming a relevant market actually materializes. The programming effort from Netflix, called House of Cards, is slated for introduction next month and should give Amazon at least an inkling of what to expect.
Why would Amazon take on the responsibitlies associated with content creation? After all, that's the bailiwick of those Hollywood types, right? There are a few reasons that, at least in theory, will make Amazon's efforts, as well as those of Netflix, YouTube's production videos, and Yahoo!'s clips, worthwhile.
With as many players as there already are in the streaming video market, and more on the way, original programming is a means for Amazon to differentiate itself from the masses. Also, reliance on content from third parties -- in other words, those Hollywood types -- is already an expensive proposition. Amazon's content deal with Epix consisted of both an up-front payment -- Netflix had been paying $200 million to Epix annually, though that included exclusivity -- and possibly more based on Prime subscriber growth. Clearly, the cost of online content can be significant, and slowly building a warehouse of programming developed in-house may help Amazon, and others, manage those expenses.
The difference with Amazon
Like Netflix, Amazon's current Prime service customers will have access to new programming as it comes online as part of their existing package. What makes Amazon's content efforts especially intriguing, unlike the kings of online content -- Google's YouTube, Netflix, or the multitude of original offerings from Yahoo! -- is the potential for sales and licensing revenue.
First and foremost, Amazon is the king of online retail. Its AWS cloud solutions, Kindles, and Prime, are all above and beyond what Amazon does best: Sell a lot of stuff. With that said, imagine if one or more of its six new, original Internet programs hit pay dirt? Packaging and selling DVDs is what Amazon does -- and does it better than most.
Amazon's foray into content production has the potential to boost subscriber growth for its Prime service, generate retail sales of DVDs, and further differentiate itself from Netflix, Google's YouTube, and Yahoo!.