spending soars, returns unclear
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[August 03, 2017]
By Jeffrey Dastin
SAN FRANCISCO (Reuters) - Amazon.com Inc is
quickly ramping up the billions of dollars a year it spends on creating
and licensing TV shows and films, signaling the retailer plans to be in
show business for the long haul.
The issue came to the forefront of investors' attention last week, when
Amazon said a step up in its spending on video projects could be one of
several reasons it might report a loss this quarter, even as it expects
more than $39 billion in overall sales.
The company's shares, though up 33 percent this year, have dipped 5
percent since that warning.
Wall Street analysts estimate Amazon's spending on content will have
tripled to more than $4.5 billion by the end of this year from 2014.
Catching customers' attention with video now represents one of the
company's biggest investments, people familiar with the matter said.
Amazon does not break out spending figures, and it declined comment on
The company has visibly increased its footprint in Hollywood since
opening a nearby studio in 2010, and picked up its first Academy Awards
earlier this year.
"We expect Amazon to quickly exceed Netflix's annual spending on video,"
said Needham & Co analyst Laura Martin, who estimates that Netflix Inc <NFLX.O>,
the top online television service, will spend $6 billion on content this
MEANS TO AN END?
The fast-growing investment in original video is just one of many
simultaneous moves by Amazon into new areas, including brick-and-mortar
retailing with its planned acquisition of Whole Foods Market Inc <WFM.O>.
Amazon has offered little detail for investors on where it is spending
extra on content, or why, making it hard to evaluate if the investment
is working. Broadly, it has said video is a key benefit of its
money-spinning Prime shopping club, whose members tend to buy more goods
from Amazon on top of paying a yearly fee.
"When we win a Golden Globe, it helps us sell more shoes," Chief
Executive Jeff Bezos said at a Recode tech conference last year. "People
who use Prime Video ... renew at higher rates, and they convert from
free trials at higher rates."
One of the people familiar with the company's operations said Amazon has
data scientists and economists running computer models to determine how
video influences whether shoppers sign up for Prime after a free trial
[to top of second column]
Actor Jeffrey Tambor poses backstage with the award for Outstanding
Lead Actor In A Comedy Series for Amazon Studios "Transparent" at
the 67th Primetime Emmy Awards in Los Angeles, California, U.S. on
September 20, 2015. REUTERS/Mike Blake/File Photo
In turn, deciding the budget for video spending involves a complicated set of
factors, including subscription fees and the value of extra spending by Prime
members, the person said.
SUCCESS NOT ASSURED
Despite its award wins for distributing "Manchester by the Sea" and producing TV
shows such as "Transparent," Amazon's Hollywood push has not been entirely
An early plan to let anyone submit scripts online and crowd-source opinions on
what shows to produce - an effort to disrupt Hollywood's lengthy and expensive
greenlight system - has effectively been abandoned.
Some have expressed concern that Amazon is focusing on niche audiences that
likely are already Prime Video users, such as recent projects with director
Meanwhile, costs mount. Amazon paid $10 million to score distribution rights to
"Manchester by the Sea" - one of the largest deals ever at the Sundance Film
Festival. And it is paying about $50 million to stream 10 Thursday-night games
for the U.S. National Football League this year, five times what Twitter Inc <TWTR.N>
had paid for the same rights.
The famously frugal company threw lavish awards show parties, too, a sign it has
not been able to shave off as much of Hollywood's notoriously high costs as it
may have hoped.
"The bets they have to make on content are subject to the vagaries of the movie
business," said Paul Verna, an analyst at research firm eMarketer. Being in
Hollywood is "entirely different from being a data company or a tech company or
a devices company."
(Reporting By Jeffrey Dastin; Editing by Bill Rigby)
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