SEATTLE – Amazon is seeking to up the stakes in the battle of content, as JPMorgan’s Doug Anmuth estimates the company will spend $5 billion on video content this year, specifically on big-budget original shows and sports rights.
One reason for the big spend, Anmuth says, is that video helps with Prime conversions and retention. Subscribers of Prime get Amazon’s Prime Video service. It is ad-free, but Amazon did have ads on its broadcast of NFL “Thursday Night Football,” and it also allows ads on channels offered through its Amazon Channels initiative.
Last year, Amazon was estimated to have spent north of $4 billion on content.
Insiders aren’t surprised by the move – there’s been a trend of internet companies entering the media business. Netflix is expected to spend upwards of $8 billion on video content this year, and Facebook will put $1 billion into video.
To compare, broadcast networks are spending between $3 billion and $4 billion on content annually.
Analysts say behind all the spending is the desire to occupy more consumer time, not only to boost subscriptions, but also to lay the groundwork for possible advertising as well.
JPMorgan estimates that video will account for 17 percent of online ad spending this year, and that number will rise to 22 percent by 2020. And even though Amazon and Netflix don’t offer advertising on their subscription services now, it wouldn’t preclude them from offering packages with ads in the future.
Among the key drivers for video content is sports – not only for content spend from internet companies, but also to boost online video ad growth. Viewers tend to watch through commercials when viewing live sports – and video over the internet allows for more targeted, relevant and interactive ads.
Anmuth says internet companies are spending on limited sports rights (i.e., short-term “Thursday Night Football” on Amazon and MLB games on Twitter) to “build engagement now to potentially bid for bigger sports rights down the line.” Analysts say to look for internet companies to be competitive bidders as NFL, MLB, and NHL contracts come up for renewal in the next two to three years.