I was just thinking about how Amazon’s goal is to subsidize their new Kindle Fire by selling content – in particular video content, which can then be streamed using their Amazon Prime “Netflix-like” service.
In fact, on Monday Amazon said its online streaming service will offer Fox movies and television shows under a new content deal, so Amazon seems to be expanding their content licensing portfolio.
However, Amazon is at the mercy of whatever the content providers charge for TV shows and movies. Netflix has inked some deals with several Hollywood studios due the strength of their membership base. Amazon can follow Netflix’s model and continue to license content or I posit that Amazon should follow the HBO model and create their own content.
I grew up in the 1970s and 1980s when HBO took off. They offered movies that became available on HBO before your local video rental store had it. However, their advantage diminished as the time window HBO (and later Showtime) offered movies before rental companies and pay-per-view got shorter and shorter. I stopped subscribing to HBO long ago due to the DVD revolution (Blockbuster) and later Netflix. There just wasn’t enough unique content and I didn’t care for boxing matches, stand-up comedy, and concert specials that rounded out HBO’s unique content portfolio.
Then HBO did something smart and created made-for-cable movies, children's shows, and documentaries. Shows like Fraggle Rock, Tales from the Crypt gave HBO subscribers something unique they were willing to pay for. More recently, shows like The Sopranos, Sex in the City, True Blood, and my current favorite Game of Thrones rekindles my love affair with HBO. HBO is no longer at the mercy of the movie studios to provide them content which subscribers are increasingly finding elsewhere (Netflix, Redbox, etc.).
Perhaps it’s early in the game for Amazon to start considering “creating” content, but remember the golden rule – “Content is King”. Look no further than the Cablevision vs. Fox fiasco where Cablevision subscribers endured a lengthy period of time with no Fox content. Amazon needs to be in control of their own destiny. Just look at how Netflix recently bought exclusivity rights to DreamWorks Animation. Amazon better hurry before Netflix “locks up” exclusivity contracts that don’t expire for years, thus closing the window of opportunity for Amazon.
If I were Amazon CEO Jeff Bezos I would consider buying HBO from Time Warner. It gives them access to HBO’s existing content license agreements and a creator of good content. Amazon has around $7 billion cash on hand, so why not lock up some content producers before someone else does? Assuming Time Warner isn’t willing to let go of HBO, then Amazon should consider using that cash-on-hand to produce their own TV shows and full-length movies. Thus, Amazon would become like HBO, offering both first run movies & TV shows through licensing agreements, as well as offering unique content – all without relying on the cable companies to carry Amazon’s content. The content is distributed over the Internet free of charge (relatively speaking) and that is what truly scares the cable companies.
Netflix and Hulu have already caused many cable customers to “cut the cord” and go with streaming video, saving $50+/month. If anything, I think Amazon is a greater risk to the cable TV (or satellite TV) model than Netflix. Netflix has essentially two revenue sources – streaming and DVD/Blue-ray by mail, while Amazon sells books, electronics, lawn care products, home improvement items, etc. With their huge cadre of products they sell, Amazon is less prone to recession impacts, but more importantly they have much more money to bankroll TV and movie projects that may not pan out. But Amazon can take that risk with the cash-on-hand that they have.
Of course, Apple has almost $30 billion and Google has nearly $40 billion cash-on-hand, so both could also get into the content business. Microsoft also needs to be considered, and it's worth mentioning they already provide the software used in some TV receivers. However, other than software creation, Microsoft tends to enable their massive partner community and third-parties to do the "creating" as opposed to creating things themselves. Also, I believe Amazon is in a better position than these other companies to get into the entertainment creation business - after all they are the largest entertainment store in the world (books, DVDs, etc.). I believe what Apple did to digital music Amazon could do to digital TV & movie content, but the window of opportunity is closing before other big sharks jump in.
Your move Amazon…