Amazon spends to rival Netflix
E-commerce giant part of ongoing arms race among streaming services,
Where does all of that Amazon money go?
Movies and TV, distribution centers and India. Those are three of the biggest money sinks Amazon has going now — all aimed at growing the company and, secondarily, the bottom line.
The feverish pace at which the Seattle online behemoth is building fulfillment centers reflects the importance of its Prime memberships and same-day delivery services. It’s also pushing hard into India to ensure it doesn’t miss out on what, according to the United Nations, will be the world’s largest population within six years.
“Our India team is moving fast and delivering for customers and sellers,” Amazon CEO Jeff Bezos said in the company’s earnings release Thursday. “We’ll keep investing in technology and infrastructure while working hard to invent on behalf of our customers and small and medium businesses in India.”
Amazon is famous for spending on things that can seem like long shots but pay off big in the end. Take, for example, its enormously profitable Web service division AWS. In the first quarter, that cloud computing division accounted for 10% of the company’s net sales but represented more than half of its operating income.
Will movies and streaming TV be next? The Boston Consulting Group estimated Amazon spent $3.2 billion on content in 2016. The company said last June it planned to double its spending on video content and triple it on original content.
Amazon shares surged late Thursday after announcing its quarterly financial results. Sales jumped 23% to $35.7 billion, topping forecasts of $35.3 billion according to analysts polled by S&P Global Market Intelligence. Against that sales fire hose, profit rose to $724 million, or $1.48 a share, easily topping forecasts for $531 million, or $1.10 a share. Expenses also gained, to $34.7 billion, as its loss tripled from its international expansion.
“Every quarter is not a signal of their future health; it’s really a choice of where they chose to invest. They’re crystal clear that they’re not managing for quarterly earnings,” Michael Pachter, an Amazon analyst with Wedbush Securities in Los Angeles, said ahead of the results.
Content is a newly burgeoning aspect of that spending. “If they decide to invest $1 billion in streaming content, for example, that could impact things,” he said.
Amazon is part of an ongoing race among streaming services such as Netflix, Hulu and HBO, all of which are competing to have the most must-watch content.
It’s paying off in prestige, certainly. Amazon Studios won three Oscars this year. One was for best original screenplay for Manches
ter By the Sea, another to Casey Affleck for best actor for the movie’s lead role. The third was for best foreign language film for
The Salesman, an Iranian drama. For Amazon, those awards represented a vindication of its efforts to buy, license or create movies and shows.
It doesn’t hurt that unlike other content producers, Amazon doesn’t need to make a profit from its offerings; it only has to be ever more enticing to its hugely profitable Prime members.
According to Consumer Intelligence Research Partners, 80 million Americans are now members of the service.
They not only pay $99 (generally) for the privilege but also spend on average $1,300 per year compared with $700 for non-members.
“They’re crystal clear that they’re not managing for quarterly earnings.” Michael Pachter, an Amazon analyst with Wedbush Securities in Los Angeles