Business Insider

Amazon Has One Edge Over Netflix: It Can Lose Money on Streaming Video

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This post originally appeared on Business Insider

Netflix might be the king of content in the streaming video world, but there’s one gargantuan advantage Amazon has in the space: it doesn’t actually have to make money on its Netflix competitor, Prime Video.

Amazon CFO Brian Olsavsky highlighted the value of video to Amazon during its earnings call on Thursday. He said that Amazon is going to “significantly increase [its] content spend” on its video offerings because the company is seeing better engagement and conversions from Prime members who use the video service.

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In plain English: Prime Video helps Amazon make money in other ways.

Here’s a simple example. In arecent survey conducted by CutCableToday (independent of its website), Amazon Prime subscribers were found to be 10 times as likely to rent or buy movies from Amazon Instant Video than non-Prime members.

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Let’s break that down. Amazon has two tiers of video. The first is Prime Video, which is a Netflix-like service attached to Prime (oravailable separately for $8.99 per month). The second is Amazon Instant Video, which is a “rent or buy” service like iTunes. And you can browse both at the same time.

One of the advantages for Amazon is that once people get in the habit of going to Prime to watch videos, which are free except for subscription fees, the company has a chance to sell them on renting or buying videos that aren’t available. Here’s the scenario: you search for “The Revenant,” and it’s not available on Prime, but there it is sitting on your screen, available to rent on Amazon for $5.99 with one click. You might just go for it.

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In the survey, 40% of 380 Prime members polled said they rent or bought video from Amazon Video at least once per month, as opposed to just 4% of non-Prime members. That’s a big difference. And while that difference might be affected by factors other than exposure to Prime Video, Olsavsky’s comments suggest Amazon sees video as a driver of other purchases.

This isn’t good news for competitors like Netflix, whose core business is providing high-quality movies and shows for a per-month fee. Amazon could theoretically never make a single cent directly off of Prime Video, and still have the project be a resounding success. But a bigger threat to Netflix might be if other companies, like wireless carriers, follow Amazon’s lead and start using subscription video primarily as a tool to make money off of other products.

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