Jeff Bezos’ Hollywood dreams aren’t just coming true — they’re paying off.Image: Joe Scarnici/Getty Images for AmazonBy Rachel Kraus2018-03-15 15:27:28 UTC
Amazon has been mum about how it makes many of its (sometimes questionable) entertainment programming decisions. Now, based on leaked internal documents, it looks like the answer is cold hard cash.
Reuters has acquired Amazon financial information that for the first time provides insight into just how profitable and widely watched Amazon’s Prime Originals and streaming service are. Significantly, the documents shed light on the financial strategy of Prime Originals — specifically, how Amazon’s entertainment venture contributes to the growth of its Prime subscriber base, and overall subscription business profitability.
Amazon has never released statistics on its total Prime subscriber numbers. But according to the documents, Amazon Prime has a total U.S. audience of about 26 million viewers, which includes its originals as well as shows it licenses from other companies.
Prime Originals’ top television shows drove 5 million new Prime subscriptions by early 2017, according to the leaked documents. Reuters notes that using entertainment programming to draw customers to a Prime subscription is a key proponent of Amazon’s business strategy, a strategy that Jeff Bezos spoke to at a 2016 technology conference. Bezos said at the same conference that users who come to Prime through entertainment are more likely to convert to full-fledged subscriptions through free trials, renew subscriptions annually at higher rates, and even buy more products. So a Prime subscriber drawn in through Originals programming is a valuable one.
And Amazon knows it.
The documents show that Amazon calculates a direct return on investment for each show, based on what it costs to produce versus how many Prime subscriptions it drives. For example, The Man in the High Castle cost $72 million to produce and market, but drove 1.15 million new Prime subscribers. That comes out to a cost of $63 per new Prime subscriber — which is far less than the annual Prime fee of $99. Cha-ching!
The show Good Girls Revolt didn’t achieve similar success in converting viewers to subscribers. It cost $81 million to produce, but only drove 52,000 “first streams” (i.e. new viewers) on Amazon. That made its cost per new customer $1,560 — more than ten times the cost of a one year prime subscription.
Guess which show is still on the air.
(It’s ‘High Castle’ — Good Girls Revolt was canceled after its first season despite a massive outcry from fans. Now, we know a bit more about why).
Reuters provides a handy graph to illustrate the direct comparison between a show’s overall cost, and its cost per new subscriber.
Critics have questioned Amazon’s programming decisions, saying at times that they were driven by sexism, at times that it was the experiment of a Hollywood outsider. But these financials show that there is indeed a method to Amazon’s madness.
However, is there a downside to evaluating shows based on the new viewers they bring in, as opposed to how well they’re satisfying existing customers? The documents don’t reveal whether this is part of the cancel vs. renew equation. But for loyal Amazon subscribers and viewers, it’s not a good look.
Whether you approve of Amazon’s apparent new viewer-to-subscriber business strategy, one thing’s for sure: Amazon’s entertainment venture is paying off, big time.