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Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

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Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#21

Post by jlgreco »

sliverstorm wrote: post #12
kbutler wrote: post #8

> Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video I'm skeptical. This posits that Amazon is spending about 1/4-1/2 of what Netflix spends (Netflix on track for $2.1 billion this year), to stream about 1/20th as much (Netflix 33% of internet traffic, Amazon 1.8%), from a greatly inferior content catalog. I think Bezos & Co. can cut better deals than that.

Netflix 33% of internet traffic Numbers like that give me pause. I can kind of see where the anti-Network Neutrality folks are coming from.

So long as everybody is paying their own internet bill, I don't see why the ISPs should have any right to complain.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#22

Post by rogerbinns »

travem wrote: post #5
rogerbinns wrote: post #4

This sounds somewhat bizarre. For physical goods it made sense as you had to build big expensive distribution centres. This means big fixed costs and low variable costs. For streaming video delivery the fixed costs are almost zero while the variable costs are proportional to the amount of video watched. The article that the deals Netflix and Amazon do with the content providers are fixed cost deals - ie pay a certain…

I imagine there are various fixed and variable parts to some of these deals (no inside knowledge). Imagine though that you are selling exclusive rights to your catalog for a fixed period of time (say 2 years). You would want to maximise revenue while managing risk. As a content provider you may not have sufficient information to figure out what the likely number of views will be in two years times as there are multip…

If I was the content owner I would do the deal as per view, and with overall minimum payments. That way you get a minimum payment for your time and you share in the success of the content.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#23

Post by gpayan »

IMO, this is not an issue for Amazon as Amazon Instant Video is still a support business for Amazon. It is used to sell more Prime subscriptions (and more Kindles as well). It seems that now Amazon is testing if it could be a viable standalone business but it’s not guaranteed.

It seems like SVOD services are generally “support businesses” that aim to promote a company’s main product/service that is sold at a higher margin. For instance, DISH Network offers access to Blockbuster SVOD platform as an add-on to its pay-TV subscription (the idea here is to get more pay-TV subscribers). Comcast XFINITY SVOD service is provided on top of other Comcast services and aims to attract more pay-TV and broadband subscribers. We could even argue that Netflix Instant Streaming was first used to support Netflix “DVD by Mail” business (even if it might not be completely the case here).

The margins on those SVOD services are low compare to the “pay-TV or “DVD by Mail” business. In Q3 2012, Netflix contribution margin for its domestic streaming business was 16.4% vs 48% for its domestic “DVD by Mail” business. As pointed out earlier, for SVOD to work, you need volume. Thus, Netflix strong push for its international expansion. Amazon might pull it off, but it will require significant investment outside the US to work out.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#24

Post by IheartApplesDix »

tsotha wrote: post #16

Reid is saying Amazon is paying half of what Netflix is paying for a tiny fraction of the latter's catalog and an even tinier fraction of Netflix's volume? If that's what he's saying I'm hard pressed to think he actually believes it. Also, Amazon can afford to lose a bit (probably not a billion, though) on its streaming service if 1) more people sign up for Prime as a result and 2) Prime members buy more inventory fr…

My back of the armchair calculations estimate that he's off by about 2 orders of a magnitude.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#25

Post by erikpukinskis »

nirvana wrote: post #3

It's ok, they'll make it up in volume. I'm only half joking, the fact that PRIME is part of their retail sales program means that they do make more sales to PRIME members. If their deals for content are cheap enough, it could work without significant changes... eventually. I'm just amazed that they are able to do this for so long. Their P/E (in profitable quarters) is astronomical.

> I'm just amazed that they are able to do this for so long.

They keep wiggling into new growth markets. If they were just a bookstore their stock price would've collapsed. But they've gotten into:

* Retail (a multi-trillion dollar market in the U.S. alone)

* Media sales and rental (much smaller)

* Cloud computing (something like $100 billin and growing)

* Consumer computing devices (something in the low hundreds of billions)

All they have to do to justify their P/E is be in a position to credibly say they can get a serious slice of these markets. And honestly, they're positioned extremely well in all four:

* In retail they're indisputably at the lead of home shopping, which seems to be the future.

* There one of a handful of companies with serious share in movie/music distribution at this point

* They're probably the biggest cloud provider, one that other cloud providers are built on.

* Given the growing importance of media as a selling point and revenue stream for device makers, and great traction in tablets, they're positioned very well in devices too.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#26

Post by dangrossman »

rgbrgb wrote: post #18

I think they'd do well to devote resources to making browsing videos less like shopping on Amazon. When I log into Netflix, I feel like a valued customer. They go out of their way to find stuff I'd love to watch and NEVER try to sell me anything. I've payed money and they want to give me a great service. Comparatively, browsing videos on Amazon feels like I'm in Walmart. I am bombarded with continuous advertisements,…

Hook up a Roku or other set-top box to your TV. Run the Amazon Instant Video app. It works just like Netflix. No store, no ads, just flipping through box art to choose movies or shows to watch.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#28

Post by MSM »

simonh wrote: post #19
tomkit wrote: post #2

I guess Bezos is really serious when he tells shareholders his company is willing to not maximize profit in the short term for long term investments.

And he was telling them the same thing 5 years ego. And 5 years before that. And 5 years before that as well. I wonder what he'll be telling them in 5 years time, or in 10 for that matter.

He'll probably say something along the line of

"In '97 Amazon had market cap of $291M, in '02 it was 3.5B, in '07 it was $20B and today it's $100B. I don't know... seems to be working."

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#29

Post by timo614 »

scott_s wrote: post #11
incision wrote: post #7

Personally, my use of Prime is significantly different than Netflix. I've rarely used Prime free content, but I have rented a number of recent movies and "bought" a few recent seasons of TV shows. Off the top of my head, Amazon has collected more cash from me for video streaming in the last 6 months than Netflix, but I've been consuming probably 10x more data from Netflix. I wonder if / how Hastings comparison accoun…

This is my usage exactly. I won't rent through Sony because they impose a 24 hour period - I rarely have two consecutive hours to spend watching a movie any given day. Amazon uses a 48 hour period, which I can live with.

Yeah I use Amazon Prime for all of my renting as well...

It's very easy to get the movies on my xbox, they cost about half as much as they would on itunes to rent, and they have a much better selection of movies I can see than Netflix since I can rent the ones I'm actually interested in seeing.

Re: Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

#30

Post by wtvanhest »

wpietri wrote: post #15
kbutler wrote: post #8

> Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video I'm skeptical. This posits that Amazon is spending about 1/4-1/2 of what Netflix spends (Netflix on track for $2.1 billion this year), to stream about 1/20th as much (Netflix 33% of internet traffic, Amazon 1.8%), from a greatly inferior content catalog. I think Bezos & Co. can cut better deals than that.

How would he do that? Hastings says the estimate is based on head-to-head competition. If I'm selling streaming rights for property A, I'm going to go with the people who pay me the most. If Bezos says, "But gosh, we aren't showing it to as many people," my answer will be "Tough!"

You are probably right, but you (and Hastings) may not be. If I am a negotiator at Amazon, I am cutting the following deal:

- Titles we provide free to our customers

- Titles we provide for a charge which we split the fee with content producer at some ratio

- Placement of those for pay titles on the site so they are bought more

I'd sum the value of the contract and show how even though Amazon will not give as much cash in the deal, the content producer will net a bigger positive number.

Obviously this is speculation, but I could see that playing out easily.

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