Amazon Video Direct’s Primary Purpose Is to Enhance Amazon Prime
Amazon recently announced the launch of Amazon Video Direct (AVD), which invites people and companies to share their videos with the Amazon Prime membership base — and get paid for it. AVD is the latest in an ongoing series of initiatives designed to strengthen Amazon’s presence in the streaming video category and better compete for viewers’ attentions with YouTube, Netflix, and other providers. More than that, though, AVD is intended to enhance Amazon’s paid subscription efforts, an objective of vital importance to Amazon.
AVD’s debut came shortly after Amazon began offering a monthly Prime Instant Video subscription option. The standalone service is priced at $8.99, a dollar below the monthly fee for Netflix’s most popular plan. It’s also a dollar less than the monthly fee for YouTube Red, the ad-free , Google-backed service. These three companies (and many others) are heavily investing in streaming video services for good reason: It remains a huge growth industry.
For the first time ever, according to eMarketer, over half of all U.S. adults will watch streaming videos at least once a month this year; next year, two out of three adults will do so. What’s more, YouTube’s chief business officer predicts that, by 2020, 90% of all online traffic will revolve around videos. The company that manages to capture — and monetize — the biggest slice of the viewing audience will reap the biggest profits.
A paid subscription service is ideally suited to monetizing loyal customers, as Amazon knows. In 2005, the company launched Amazon Prime, which offered customers free 2-day shipping on millions of items in exchange for a $79 annual fee. Although free shipping remains the most effective online deal a retailer can offer, Prime membership numbers didn’t really take off until 2011, when Amazon began adding video streaming, book lending, and other benefits to the program.
A paid subscription program can succeed only if its target audience believes the benefits are at least as valuable as the program fee. In March 2014, Prime raised its annual fee to $99, a 25% increase, which threatened to change the cost-benefit analysis in the minds of existing and prospective members. Amazon has therefore focused on making a variety of continual benefit updates since then, and it’s been especially diligent about expanding Prime’s video offerings.
In 2014, for example, Amazon spent $1.3 billion on streaming video content, buying the rights to a wide selection of movies and television shows. In 2015, subscribers were given access to other online video subscriptions, including Showtime. Starz, Acorn TV, and others, through their Prime accounts. Amazon also “doubled down” on its investments in original programming, such as the award-winning “Transparent” and “Mozart in the Jungle,” as well as an upcoming Woody Allen series. Amazon CFO Brian Olsavsky recently told investors that the company would increase its spending on content to support “better engagements, better free trial conversions from Prime members who use the video service.”
The AVD launch is a big step in that direction. Not only does it help Prime expand into user-generated content, an area currently dominated by YouTube, it ensures that Prime’s inventory of videos keeps growing. By paying “creators and storytellers” based on favorable audience responses to their content, and by instituting a more stringent process for uploading videos than YouTube and other services use, Amazon also increases the chances that AVD content will appeal to members and pique the interest of non-members. According to Amazon, “Our goal is to deliver the broadest selection of premium content to our customers, so we are requiring that videos be high quality and have direct captioning support. We’re constantly evaluating customer feedback to improve the experience.”
“Improving the [Prime] experience” is AVD’s primary purpose. The estimated 57 to 61 million U.S. shoppers already in the Prime fold reportedly spend more than twice as much with Amazon as non-members do. Better yet, from Amazon’s perspective, the longer their memberships, the more they spend with Amazon each year, which increases the online retail giant’s incentive — and reward — for retaining them.
AVD will also presumably entice more non-members to try Prime. The trial period will give Amazon an opportunity to target them with detailed, customized messages about its larger universe of services and products. This is yet another advantage of making continual enhancements to a paid subscription program: It can have significant short- and long-term impacts on a retailer’s bottom line.
That said, Amazon’s retail preeminence hasn’t translated into streaming video supremacy. For one thing, many industry observers and consumers prefer Netflix to Prime Instant Video. Also, while its 47 million U.S. subscribers lag behind Prime’s audience, Netflix has the edge in actual viewers; one survey estimated that only 40% of Prime members (i.e., about 24 million), use Prime Instant Video at least once a week.
Another survey found that streaming video doesn’t play a big role in most members’ subscription decisions; 91% of members cited free 2-day shipping as a primary reason for subscribing, while only 22% mentioned Prime Instant Video. Their viewing habits followed a similar theme:
- 10% used Prime Instant Video every day.
- 34% used it once a week.
- 36% used it once a month.
- 19% never used it.
- 8% weren’t even aware of the benefit.
The survey also found that 84% of Prime members had Netflix subscriptions, and 38% used Netflix every day. In addition, 43% subscribed to HBO Now (3% daily usage), and 35% subscribed to Hulu (12% daily usage). Given all that, using AVD to bolster the Prime video library makes good business sense.
Indeed, Amazon Video Direct accomplishes several interconnected goals for Amazon. Its payment options and uploading process increase the likelihood that Amazon’s paid subscription programs will keep generating crowd-pleasing content. By continually expanding its catalog of viewer-worthy videos, AVD will continue to enhance the appeal of Amazon Prime and the monthly Prime Instant Video option. That will strengthen Prime’s ability to retain existing members and acquire new ones, which, given their shopping propensities, will bolster Amazon’s revenues. That, in turn, will allow Amazon to keep refreshing and improving Prime’s benefits.
It all adds up to a smart move by Amazon and a valuable lesson for any retailer that wants to create its own paid subscription program — if only to give itself a better chance to compete with Amazon in today’s e-commerce landscape.
Tom Caporaso is the CEO of premium loyalty solutions pioneer Clarus Commerce, with over 24 years of experience in the retail, e-business and customer loyalty industries. Appointed Clarus’ Chief Executive Officer in 2011, Tom’s leadership has led to exceptional growth for the once 10-person start-up which now boasts over 90 employees.
Under Tom’s guidance, Clarus has cultivated partnerships with brands and retailers such as MasterCard, FedEx, Bluestem Brands and Good Housekeeping; creating and managing premium loyalty programs that reward both the brand and its customers.
Caporaso is a noted expert in the retail, customer loyalty and e-commerce industries who contributes regularly to Nasdaq and has been frequently featured in numerous other outlets.