The Industry

The OTT Super-bundler

Without making much noise about it, Amazon has become a super-bundler of OTT content. In addition to their own unique programming Amazon now carries programming from over 90 different channel partners. This creates some really interesting dynamics in the industry.

What makes Amazon a wildcard in the OTT business is that nobody knows how many Prime video customers they have. The growth of the Prime service has been explosive, but that service provides free shipping on Amazon with an annual $99 fee and Amazon doesn’t report how many of those members watch Amazon video. Industry analysts have estimated that there were 45 million Prime customers in 2015, 65 million in 2017 and probably 80 million by the end of this year. That huge overall customer base has the potential to turn Amazon into a bigger video provider than even Netflix, but unless the company begins disclosing video customers we may never know.

We do get some idea of Amazon’s market strength through its impact on channel partners. Recently BTIG analyst Rich Greenfield reported that Amazon is responsible for over half of the online sales of HBO, and almost all of the online content sold by Showtime and Starz.

That creates an interesting dilemma for HBO. The company directly markets its online product at $15 – the same price that is being marketed on Amazon. HBO has enough strength as a programmer that they also charge about the same cost to service providers on cable or fiber systems. But there is no doubt that Amazon extracts a fee for selling the service, and so HBO will make a smaller margin on an Amazon sale than through its other sales channels. This means that every time a customer cuts the cord on cable and instead comes to HBO through Amazon that the company loses margin. This is not likely to hurt HBO much and they are better off retaining customers – but Amazon profits significantly on selling HBO and other services due to its sheer market power and number of subscribers.

But HBO and the other programmers lose something more important than just a little margin – they lose a direct relationship with a customer. Amazon knows the customer, bills the customer, and also knows the customer’s preferences for watching video of various types. This knowledge has to be invaluable to Amazon.

The list of OTT providers on Amazon is impressive and it represents almost every OTT provider that is not owned by a big ISP. In addition to the premium movie services, Amazon carries just about every OTT provider you ever heard of – and many that you have not. Just to throw out a few names, Amazon carriers Fullscreen, Fandor, Curiosity Stream, Gaia, PBS Kids, Shudder, Motorvision.TV, Mubi, the Daily Burn, Heera, Acorn TV and many others.

A number of these OTT providers only sell through Amazon, so you won’t find them anywhere else on the web. Pretty much anybody that can gather together a pile of content can gain significant subscribers through the Amazon platform.

The way that Amazon markets these providers is interesting. If you are an Amazon Prime customer you can see the full list of its channel partners by searching for ‘Amazon Channels’. But Amazon doesn’t directly market any of the channels as a service, but instead only offers you the channel content based upon your search for content. If you want to watch a horror movie then your search results will include Amazon’s own content as well as content from the many channel partners. You may be offered content from Shudder, Screambox, Full Moon or XLTV without even realizing it. Somewhere in that search you will also be offered a subscription to these various horror channels.

It’s easy to think that we are seeing the growth of a vibrant OTT industry. But when you look a little deeper we are not. The industry really consists of Netflix and its huge pile of unique content, Hulu which is owned by the cable companies, a handful of resellers of standard cable channels like SlingTV, and Amazon Prime. Many of the channels on Amazon Prime offer direct subscriptions, but it turns out that almost all of their sales come through the Amazon platform and not directly through web subscribers. I find it interesting that a lot of the channels carried by Amazon offer a free 30-day trial to anybody directly on the web, but when purchased through Amazon customers always pay up front and are not offered the free trial. For many of the smaller providers 30 days is long enough to watch all of their content you care to see – but Amazon has instead monetized the interest in the content.

This makes a lot of sense for a content owner. They need virtually no advertising budget because the huge number of Amazon Prime customers can find their content by genre. And they don’t need to work through the issues of developing the physical network infrastructure necessary to provide web programming – that all gets handled by Amazon. But these channel owners also lose a lot. They don’t know their customers. In many cases people watch their content without even realizing that they are the content owners. But I guess the lure of selling to 80 million potential customers outweighs these concerns. It’s certainly a great deal for Amazon because they are gathering enough content to satisfy almost any potential video customer – without having to develop the content.

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