Amazon’s investment in video content appears to be paying off.
According to The Wrap, Amazon CFO Brian Olsavsky said the number of hours viewed on Amazon Prime Video doubled in 2016 as compared to 2015.
“Well, ultimately, I'll step back and say one of the main things we look out on Prime Video is customer usage patterns and in 2016 we had a doubling of Prime hours for video, music and reading. So we're happy with the engagement that customers have,” Olsavsky said during yesterday’s earnings call, according to a Seeking Alpha transcript.
Later in the call, Olsavsky offered more detail on what Amazon is expecting out of its content spending and its recent international expansion of Amazon Prime Video.
“We're certainly spending ahead of the value of the engagement right now, but it's a good sign that it's building,” said Olsavsky. “As I said, it's very much a fixed expense game, especially with original content. That fixed amount can go up or down, but the ability to amortize it over a large population is what we're looking for.”
“So, we see a double benefit of the global Prime Video program, again both to amortize the investment in original content but also to show that original content to more and more people, because we think it's done really well. We think it's won a lot of awards and we've worked with some—again some great, talented people. And it's our ability to scale that and to amortize it over a much larger customer base, which will help us in the future,” he added.
Amazon’s international aspirations could require the company to expand its content budget.
Jefferies analyst Brian Fitzgerald estimated that Amazon’s video content budget for 2016 was between $4 billion and $5 billion, but that the cost of international expansion to nearly 200 countries could drive that total up another $1 billion to $2 billion in 2017.
“That would bring AMZN's annual content expenditure in line with Netflix, which disclosed ~$6B content budget on P&L basis for 2017. AMZN management highlighted on the last earnings call that content was among the top three categories in which the company was, and planned to continue, investing. On the call, CFO Oslavsky said that ‘video content and marketing associated with that’ was nearly doubling Y/Y in 2H16,” Fitzgerald said in a research note.