Amazon.com, Inc. (NASDAQ:AMZN) surprised everyone when it announced that it will spend $100 million on its original video series this quarter. Despite running into the red and forecasting more losses, the e-commerce giant took an unusual step. It’s not so much about the announcement, but the number $100 million, which, when compared to Netflix, Inc. (NASDAQ:NFLX)’s budget for original content, looks paltry.
Amazon replicates Netflix’s strategy
Amazon and its arch rival Netflix never reveal their spending on original series, but Netflix, which is the number one online streaming company by number of subscribers, shelled out $100 million for just one of its series, House of Cards, according to a report from CNET. Though the $100 million budget was spread over 26 episodes and two seasons, Amazon will spend the same amount of money in the whole quarter.
Netflix has diversified itself from the video library and DVD industry by mail service and developed original content such as Orange is the New Black and House of Cards to become more of a television network. The online video streaming company has spent near 10% of its budget on original content.
To compete with Netflix, Amazon has been developing its Prime Instant Video, a service under its $99 Prime program, which is known for free second day-shipping. Netflix is already ruling the roost, but Amazon is still trying to strengthen its roots in the business. Amazon has planned a lot for the remaining fiscal year, as reflected in the company’s third-quarter spending. It is looking forward to rolling out a string of originals this year and next and is starting more shows with known faces and names.
Analysts expect more investment
The plan to invest $100 million was revealed by CFO Tom Szkutak during the earnings call. “We like what we see on the content side,” Szkutak told analysts and investors on a conference call.
Analysts are giving their own opinions about the announcement by Amazon. The retailer announced in 2013 that it would spend $1 billion for original content, stretching over last year and this year, which came to $500 million on original content each year. However, Rich Greenfield, a BTIG analyst, thinks that Amazon could spend as much as $1 billion this year.
Szkutak also said that the company’s Prime membership increased even after the rise in price. The executive added that Prime members are increasing their “cross spending,” utilizing Amazon’s transactional Instant Video service as well as streaming Prime content.
