Here is how Amazon.com is using original video programming as a vehicle to boost its exclusive Prime shopping club.
For the very first time, documents from Amazon.com Inc reveal how the world’s biggest online retailer’s bet on original video content has paid off: by early 2017 its TV series have drawn more than 5 million people worldwide to its Prime shopping club.
The U.S. audience for its video programming, including TV Series and movies it licenses from other companies, was around 26 million customers.
These internal documents containing metrics that have never been reported for the 19 shows that are exclusive to Amazon, including the number of people it lured to its Prime shopping club as well as their viewership detail.
One of Amazon’s core strategy is to use video as a vehicle to convert viewers into shoppers.
Amazon’s Prime members enjoy a 2-day package delivery service as well as other perks for an annual fee.
Although Amazon decline to comment on the content of its internal documents, Jeff Bezos, Amazon.com’s Chief Executive, has been very open about the firm’s usage of entertainment to drivce up sales.
In 2010, Amazon launched Amazon Studios in order to develop original programming that have since grabbed awards and generated tons of buzz in Hollywood.
“When we win a Golden Globe, it helps us sell more shoes,” said Bezos at a 2016 technology conference near Los Angeles. He said film and TV customers renew their subscriptions “at higher rates, and they convert from free trials at higher rates” than members who do not stream videos on Prime.
According to two sources familiar with the matter at hand, video has become Amazon’s biggest expenditures at $5 billion per year. So far the company has never disclosed how many subscribers it has garnered as a result of these expenses making it hard for analysts and investors to evaluate its programming decisions.
Case in point: the first season of its popular TV Series, “The Man in the High Castle,” an alternate history depicting Germany as the victor of World War Two, drew 8 million viewers from the United States as of early 2017. Further, the documents revealed that it cost Amazon $72 million in production and marketing costs and drew 1.15 million new subscribers worldwide.
As per Amazon’s calculation, the show drew new Prime members at an average cost of $63 per subscriber, below the $99 fee that subscribers pay in the United States for Prime. Amazon charges similar fees from Prime abroad.
Significantly, Prime members also tend to buy more goods from Amazon than non-members, said Bezos which further boosts profits.
Although the documents however do not reveal how Amazon determines a customer’s motivation for joining Prime, a source familiar with the strategy said Amazon credits a specific show for luring someone to start or extend a Prime subscription, if that program is the first one a customer streams after signing up. This metric, known as first stream, is referenced throughout the documents.
Amazon then computes its expenses to acquire the viewer by dividing the show’s costs by the number of first streams it had. Naturally, the lower the value of this number the more profitable it is for Amazon.
It is however to be noted that these documents do not show the duration for which subscribers have stayed with Prime or the quantum of their shopping.
Thus, although these internal documents reveal only a portion of the complete picture, they do not provide sufficient data to determine the overall profitability of its video endeavors.
Nevertheless, they are indicative of how Amazon is luring new members to its Prime club,
Analysts estimate that Amazon.com has around 75 million or more members in its Prime club worldwide, including almost half of all households in the U.S.