Amazon’s TV Strategy Is Smart
At the end of last week Reuters published a fascinating analysis of Amazon’s video monetization strategy. Just about everyone else in TV runs the same business model – produce the best content you can to build an audience, and then sell enough ads to cover your production costs and still clear a profit. But Amazon isn’t using its original video content to make money through ad sales. Instead their shows are used as an Amazon Prime subscription engine.
Over the last two years Amazon TV’s original series have generated 5M Prime membership subscriptions. Amazon knows Prime members buy significantly more products on platform than non-subscribers, so it’s TV shows generate revenue indirectly by driving subs. What’s even more interesting is the internal Amazon graphic below showing each series’ performance on a metric they call “Cost Per First Stream”. CPFS is calculated by dividing the series’ production cost by the number of new subscribers it attracts. The lower the CPFS they better, because it means the show is efficiently bringing in new customers to Amazon Prime.
Yes this is a complicated business model, but it’s also proving to be a highly effective one. Which goes to show you how far ahead of the traditional TV networks Amazon really is.