Media companies hoping to challenge Netflix and YouTube with their own online services are getting a huge boost from an unexpected source: Amazon.
For about a year and a half, Amazon's Prime membership service has been promoting subscriptions ranging from the well-known HBO and Starz to niche services like Gaia and Acorn TV, along with its own offerings including the award-winning comedy "Transparent." On Monday, the world's largest online retailer said the effort will expand to the U.K., Germany and Austria with 25 to 42 live and on-demand channels from its partners.
Amazon Channels is the closest TV viewers can get to the dream of a la carte TV, where subscribers pick the program sources they want instead of buying a bundle from DirecTV or Sky Plc that includes networks they never watch. The success of the initiative has surprised the Seattle-based retailer, which has put off plans for its own live service and is creating new channels focused on anime and Bollywood.
"They have scale like nobody else," said Charley Humbard, CEO of Up Entertainment, a cable programmer whose Up: Faith & Family will be part of the U.K. streaming initiative. "Their power is in their relationships with Prime members. They know what Prime members buy, how they behave. They've created a platform that works."
Amazon's $99-a-year Prime subscription is a key feature behind the online retailer's dominance of e-commerce, offering delivery discounts, photo storage, and music and video services. The company had 80 million Prime subscribers in the U.S. as of March 31, up 36% from a year earlier, according to Consumer Intelligence Research Partners LLC. Memberships lock in loyalty, making it tough for competitors.
"We very much see this as the start of something big, something new for our service," Alex Green, managing director of Amazon Video, said in an interview. The U.S. channels project has "done very well for us."
The cable version of Humbard's channel, Up TV, is in about 70 million U.S. homes. It draws a few hundred thousand viewers a night in prime time for "Bringing Up Bates," a reality show about a couple with 19 children, and original movies. It's also one of the few cable networks still signing up more subscribers.
Yet Humbard sees the same trends as everyone else. People are ditching pay TV for on-demand options, like the $4.99-a-month Up: Faith and Family. He credits Amazon with delivering a significant number of the 12 million people paying for his online service. Comcast Corp., which sells Up as an add-on to its Xfinity TV service, is also big contributor.
While many of the channels available through Amazon may be purchased independently, the online retailer nests the programming within its video app and promotes it there, enticing Prime customers to sign up for more.
"They are spectacular at finding an audience, finding targets and selling into it," said Jeffrey Hirsch, chief operating officer of Starz, another participant.
With Monday's move, Amazon Prime customers in the three new countries will be able to buy channels previously available only in the U.S., such as Gaia and CuriosityStream, as well as local options. Those participating in the European expansion include ITV, MGM, Discovery, Eurosport and the kids channel Hopster. The service will be available on most platforms where Amazon's video service is already found, including Apple Inc.'s iOS, Google's Android, game consoles and smart TVs.
"There's a lot of great content our partners are developing, and we wanted to make it available to customers," Richard Au, director of Amazon's U.S. video channels, said in an interview. "We are really surprised, but happy with what we're doing. It's helping drive people to use our service more."
That success has convinced Amazon to devote more resources to the initiative. The company has created a couple of new channels of its own for Prime members, Heera for Bollywood fans and Anime Strike for devotees of Japanese animation, and has plans for more, though Au wouldn't disclose specifics.
That's led Amazon to put off efforts to launch its own live TV service, according to people with knowledge of the matter. Amazon has told potential suppliers that its engineers must first build out the channels program, said the people, who asked not to be identified because the discussions are private.
Amazon's growing ambitions in entertainment put media companies in the tough position of dealing with a partner that would in some ways like to supplant them. Like Netflix, Amazon spends billions of dollars annually on TV shows and movies for Prime Video, which expanded around the world in December. The company just won its first Academy Award for the drama "Manchester by the Sea" and will air live National Football League games starting this fall after signing a $50 million deal with the league. Amazon doesn't just want to compete with Netflix or cable. It wants to be the only entertainment service you need at home.
With Amazon Channels, the online retailer handles the billing, depriving companies like HBO and Starz of a direct relationship with the customer. Smaller companies fret Amazon could always replace them with its own video service in the same genre.
"No one is really doing what we're doing," Au said. "We're trying to be the complete over-the-top solution for our customers. There's not really another place where you can go rent a new-release movie, watch 'Transparent' and watch 'Westworld.'"
-- Bloomberg News
