The international video streaming market is shifting up a gear with news that Amazon is following in Netflix's wake by going global.
Amazon's video streaming service, while extremely popular, has been a distant second to market leader Netflix Inc. (Nasdaq: NFLX). There are multiple reasons for this, but among them has been that Netflix has expanded its geographic footprint far more quickly. Since the beginning of 2016, Netflix has been available in 190 countries while Amazon has only offered streaming video services in ten. (See Netflix: The Birth of a Global TV Network.)
But that's about to change. Amazon is to expand into 200 countries starting in December 2016. The marketing for this launch is centered around the launch of The Grand Tour, a new show, estimated to have cost £4.5 million (US$5.6 million) per episode, created by the former team from Top Gear, a show presented by the British Broadcasting Corp. (BBC) . (See Amazon Prime Video Goes Global.)
With a budget that is nearly seven times the cost of the BBC's show, Amazon hopes to attract new audiences to both the show and the service. The show travels around the world, from "Whitby to Lapland via California and South Africa," and has been produced more like a Hollywood blockbuster than a niche show aimed at motorheads: The opening sequence alone apparently cost more than $3 million.
Is it worth it? Amazon seems to think so.
The most-watched episode of Top Gear, when hosted by the team now at Amazon, was apparently seen by 350 million people worldwide. According to estimates, Amazon Prime has 63 million subscribers today, but as it expands the reach of its video service, there will be opportunities to attract more subscribers. In the past year alone, the service has grown nearly a fifth -- even if the show attracts a small percentage of Top Gear viewers to sign up for the $99 annual service, the resulting revenue would be substantial.
But the economics for Amazon.com Inc. (Nasdaq: AMZN) are more complicated. In a previous post we discussed how Amazon's video services help get subscribers to sign up for Amazon Prime. And Prime subscribers spend substantially more with Amazon. So Amazon could effectively offer a $130 subsidy for every Amazon Prime subscriber. Therefore, Amazon might be willing to let The Grand Tour be a loss leader, if it meant driving up e-commerce revenue by ramping up Amazon Prime subscribers. (See Amazon Strategy Highlights Arms Race for Original Content.)
Amazon also claims that the show will appeal to more than just young men who are into cars: More than 40% of viewers are women and apparently the show also has appeal for family viewing.
Those would be broadminded families, we would assume. The show's founder Jeremy Clarkson has been in trouble over comments seen as racist, assaulting a member of the production team (for which he was asked to leave the BBC) and more recently, a row with an airport worker.
Unlike Netflix, for whom video is the product, Amazon's primary goal is to use video services as a means to get people to use its e-commerce storefront more often. It can generate more revenue per subscriber than Netflix as a result. In the long term this financial flexibility may prove to be a significant advantage against OTT competitors like Netflix -- but also pay-TV providers.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation