Editor's Corner—Amazon launching a regular pay-TV channel is not as crazy as it sounds

Amazon (flickr)
A traditional linear channel from Amazon could pull in more subscribers, and revenues, by tapping into a new market.
Ben Munson

Amazon is reportedly considering launching a premium TV channel to take on HBO and Showtime. While that seems counterintuitive as pay TV erodes, it could make sense in the long run.

According to the New York Post, Amazon is having early-stage discussions about parlaying its recent success at the Golden Globes and the Oscars into a premium channel that would house its original films and shows.

Of course, a successful SVOD like Amazon Prime Video going to the trouble of launching a linear TV network on a pay-TV provider platform represents a reverse of the current trend. HBO, Showtime, Starz and more have all looked to expand their customer bases outside of the traditional bundle by launching direct-to-consumer OTT services. HBO Now appears to be thriving, with Time Warner Inc. announcing last week the service now has 2.4 million subscribers.

In addition to an Amazon premium channel flying in the face of what many other premium networks are doing, there’s the concern over the general health of the linear TV bundle and the amount of consumers still interested in paying for it.

According to BTIG analyst Rich Greenfield, the top eight MVPDs’ video subscriber totals are now declining 0.9% year-over-year, a number that is partially offset by the introduction of virtual MVPD services like DirecTV Now.

“On top of cord-cutting, cord-shaving (aka 'skinny' bundles) is becoming a real issue affecting programmer affiliate fee revenue growth. Most of the major programmers spoke on Q2 2016 conference calls and in filings to a negative 2% hit from subscriber losses year-over-year. With cord-cutting representing about 1%, the remainder can be explained through subscribers downgrading or shifting to smaller packages,” Greenfield wrote in a blog post.

For those reasons, it seems like an Amazon premium channel might not be such a wise move. But a shift toward more traditional distribution for its original shows and films across the pay-TV universe would actually make sense in the context of other Amazon strategies.

Amazon made history this year by becoming the first streaming service to have a film nominated for Best Picture at the Academy Awards, with “Manchester by the Sea” earning the honor. Amazon snapped up the rights for $10 million at last year’s Sundance Film Festival and the Oscar nod seems to justify the price tag.

But, as Variety pointed out, Amazon films like "Manchester by the Sea" get more traditional theatrical releases while competitors like Netflix normally only release their films on their streaming platforms. A relatively wide theatrical release was likely a factor in the Academy’s decision regarding which films to nominate.

If traditional theatrical distribution helps Amazon originals achieve more awards-season recognition and the prestige that comes along with it, then it seems logical for Amazon to pursue a similar route with pay-TV.

A traditional linear channel from Amazon, even if it doesn’t reach the scale of an HBO or Showtime, would still result in subscriber and revenue growth for Amazon by tapping into a new market. It could also generate cord-cutting interest among entrenched pay-TV subscribers, those who Amazon is not currently reaching. The move could also force the hand of Netflix, which would open up an interesting new front in the current battle between the two SVOD giants. Finally, the strategy also aligns with Amazon’s laissez-faire approach to video, as highlighted by its Amazon Channels strategy that aggregates SVOD services from other providers.

As the Post points out, an Amazon premium channel is still in the discussion phase and may not come to pass. But if it does, it could end up being a smart move.—Ben