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Amazon.com's Biggest Advantage in Original Content

By Adam Levy - Mar 19, 2016 at 3:00PM

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Amazon knows a lot about its shoppers, and it uses that knowledge to develop originals.


SOURCE: AMAZON.com.

Roy Price is one of the most powerful people in Hollywood. He's the head of Amazon.com (AMZN 1.47%) Studios, and he has a budget of $2.6 billion to spend on content this year. While that's still only about half of Netflix's (NFLX 2.95%) $5 billion budget, Price has some valuable advantages at his disposal to make his purchases a success.

As the biggest online retailer in the world, Amazon has access to troves of data on customer interests. Price says that definitely gives him an advantage. "If there's a book series, you have a lot of insight into how it's selling," he told Bloomberg. "Even if there isn't a book series, we're doing Woody Allen's first TV series. Obviously, we know a lot of people that are huge fans of Woody Allen."

Not only does Amazon's data drive creation of new series; it can also be used for targeted marketing to get it in front of the right people.

Doing more with less
Amazon doesn't release its subscriber numbers for Prime, but it has provided some insights in its earnings calls from time to time. In its fourth-quarter call, CFO Brian Olsavsky said Prime members grew 51% year over year. The previous year, Prime members grew 53% year over year. Estimates indicate that Amazon may have more than 75 million subscribers globally.

Comparatively, Netflix crossed the 75 million global subscriber threshold just a few hours after midnight on New Year's Day. While subscribers aren't growing quite as quickly (30% last year) as Amazon, Netflix expanded to almost every country earlier this year. The expansion should help Netflix maintain its subscriber growth rate.

But Amazon has been able to do this with half the content budget of Netflix. Granted, Amazon Prime also includes unlimited two-day shipping on goods sold through Amazon.com, as well as several other benefits besides streaming video. But Olsavsky noted on the company's fourth quarter earnings call that video is really driving subscriber numbers. "It drives adoption and retention, higher free trial conversion rates, and higher renewal rates for subscribers," he told analysts.

Diving into data
Shopping data has almost certainly played a role in Amazon's success in catching up to Netflix in terms of both its licensed catalog and original content. Amazon won five Emmys last year to Netflix's four, and it's also taken home the Golden Globe for Best Comedy in each of the past two years.

Netflix also uses data to develop its original series. Considering the amount of time subscribers spend watching Netflix -- some estimates put it around two hours per day -- Netflix has loads of data about viewer habits and the kinds of shows they like. This information creates the kind of binge-worthy series necessary to succeed in streaming video on demand.

Price noted that the challenge of on-demand video isn't separating the good series from the bad series. It's separating the best series from the great series. It's the best series that are going to drive subscriptions and keep subscribers coming back for more. That's where Amazon can use its data as a differentiating factor between series or films when it has only enough money to produce a handful.

To date, Amazon has produced only 13 seasons of its original programming. Netflix, comparatively, has produced about 37 seasons in roughly the same amount of time. And Netflix plans to continue expanding only its original content efforts, planning to release twice as many seasons this year compared with last year.

Amazon's shopper data allows it to be more efficient. It's already had several widespread critical successes such as Transparent, Mozart in the Jungle, and The Man in the High Castle. While it doesn't have the same budget as competitors such as Netflix for original series, it's still finding success.

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