Amazon’s Rationale for Launching Its Streaming Partners Program
A Look at Amazon's Streaming Partners Program
Amazon Prime service
In the previous part of this series, we looked at the features of Amazon’s (AMZN) Streaming Partners Program. Here, we will look at why Amazon launched the Streaming Partners Program.
Amazon Prime is a $99-per-year program that gives customers free shipping along with unlimited access to thousands of videos. Amazon announced that it added more than 3 million members to its Prime program during the third week of December. The press release also noted that The Man in the High Castle was the most-watched program on Prime Video. Overall, the total number of viewing hours of Prime Video titles doubled this holiday season compared to the same period in 2014.
Subscriber numbers
Amazon added the Prime Instant Video service to its Prime membership in 2011, resulting in an increase of Amazon Prime subscribers. The company has increased its focus on Prime Instant Video since then and has started producing original content for its service. It also entered into content licensing deals with Viacom (VIAB) and HBO (TWX).
Amazon does not disclose the numbers for its Prime members. However, according to a Huffington Post report dated July 29, 2015, citing research by CIRP (Consumer Intelligence Research Partners), Amazon Prime had about 44 million members. As the above chart shows, Netflix (NFLX) had total streaming memberships of 65.5 million as of June 2015.
During the fiscal 2Q15 earnings call from 21st Century Fox (FOXA), management stated that Hulu was approaching 10 million memberships. Hulu is owned by 21st Century Fox, NBCUniversal (CMCSA), and the Walt Disney Company (DIS).
Why Streaming Partners?
Amazon may have launched its OTT (over-the-top) streaming subscription service to induce its Prime members to spend more on Amazon. There is a distinct possibility that as Amazon’s Prime members spend more time on Amazon, they are more likely to buy merchandise from the Amazon website. According to RBC Capital research published earlier this year, 41% of Prime members spend around $800 per year in their first year of membership.
Another possibility is that the launch of this service presents Amazon with an opportunity to earn revenues other than through its Prime members. *Amazon could be keeping a share of the revenues earned by its Streaming Partners when Prime members subscribe to the Streaming Partners’ subscription streaming service.
There is also the possibility that Amazon may offer ad-supported trial subscriptions to its Streaming Partners program, in which case it would earn a share of the advertising revenues.
Amazon makes up 6.07% of the PowerShares QQQ Trust Series 1 ETF (QQQ). QQQ has a 4.4% exposure to the Television & Radio sector.
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