Image source: Amazon.com
Cord cutters have plenty of options for streaming video to their TVs, laptops, tablets, and smartphones. Services like Netflix (NFLX 4.17%), Amazon (AMZN 1.30%) Prime, and Hulu all offer quality on-demand programming. When it comes to watching live TV, however, the options are limited.
Amazon is already well-entrenched in the lives of many cord cutters with its Amazon Prime service, including streaming video on demand. But Bloomberg Business reports that Amazon is reaching out to media companies to explore creating a live video streaming option of its own. Television watchers may soon have one more option for cutting the cord.
Amazon getting a leg up
Amazon Prime is a strange beast. It started as a two-day shipping service for almost any purchase on Amazon's website, but it has quickly transformed into a streaming video on-demand service, a music streaming service, a book lending club, access to exclusive Amazon product lines, unlimited digital photo storage, and a grocery delivery service, among other things. As Amazon adds more benefits, it makes becoming a subscriber even more appealing.
In order for Amazon to keep growing, it needs to attract subscribers outside of its core customers who consistently buy things from Amazon and take advantage of Prime's two-day shipping. The expansion into streaming media has driven a huge increase in subscriptions, especially as its content library fills out to rival that of Netflix. Still, Netflix's catalog is untouched in breadth, and only HBO Now competes with it in quality of content.
A live streaming service could differentiate Amazon from competition like Netflix and Hulu, but it's unclear if such a service would get bundled into Prime. My gut feeling is that Amazon could do it -- and justify a price increase at the same time. Netflix recently raised the rate of its most popular plan to $10 per month. Amazon could add $20 to its yearly Amazon Prime subscription and still hold price parity with Netflix.
Adding live TV streaming to Prime could help Amazon convert some Netflix subscribers, or more likely, become the first choice for people looking to cut the cord.
Could Amazon make any money off of a live TV service?
If Amazon were to roll a live-streaming TV service into Prime, it could probably make money, but it could take some time. Prime acts as a loss leader, encouraging members to buy more stuff from Amazon.com's marketplace. And it works equally well for subscribers who sign up for two-day shipping benefits as for those who sign up for the video streaming service.
During the company's fourth-quarter earnings call, CFO Tom Szkutak told investors, "Those people who were customers who were streaming have very similar purchase patterns on the physical product side as those who don't." What's more, customers who try a free trial for video convert into paid subscribers at a higher rate than those who receive a free trial for shipping. Those subscribers renew their memberships at a higher than average rate, as well.
As mentioned, live streaming could attract a lot more customers to Prime, making it the difference-maker in the decision between Netflix and Prime, or subscribing to cable and cutting the cord. As such, it could generate more sales for Amazon's retail division despite the relatively low cost.
Easier said than done
The economics of the business may not be as cut and dried as streaming video on demand, though. Amazon's live-streaming ambitions could accelerate cord cutting, which would negatively impact many networks. Some networks are even owned by cable operators, making it especially disadvantageous to cooperate with Amazon.
It may be some time before networks agree on terms with Amazon, if they are working on a deal, and Amazon might not get as good of a deal as traditional pay-TV companies. As a result, costs may be higher than expected, which would be tough for Amazon -- with already thin margins -- to swallow. Everything else (delivery infrastructure, sales team, and customer base) is already in place, however, lowering overall costs. Amazon just needs the content rights.
If Amazon starts streaming live broadcasts, it should be additive to Prime, help it compete with Netflix and traditional cable, and increase overall sales in its retail marketplace. While the cost might exceed its initial revenue for Prime, it should make up the difference in additional sales.
