Streaming Wars: Why Amazon and Apple Have Already Won
We've reached the next stage of the streaming battle: sports.
For the next 11 years, Amazon (AMZN) - Get Free Report will pay $1 billion annually for the right to stream the NFL's Thursday Night Football exclusively on Prime Video.
And Apple (AAPL) - Get Free Report has paid $2.5 billion for a similar contract with Major League Soccer (MLS).
According to Laura Martin, senior media and internet analyst at Needham and Co., the tech giants leave no chance for their competitors, such as Netflix (NFLX) - Get Free Report, because they have “virtually unlimited resources.”
As the group of Netflix bulls grows smaller every day, should they turn their eyes to AMZN and APPL?
Figure 1: Streaming Wars: Why Amazon and Apple Have Already Won
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(Read more from the Amazon Maven: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For)
Destroying the Streaming Business
According to Martin, Amazon and Apple are destroying the streaming business. The analyst acknowledged that these two titans’ streaming segments are focused on obtaining and retaining customers in their ecosystems, rather than collecting subscription fees.
"They can actually destroy the streaming business because they have other businesses that will actually make up profit or higher profit,” said the analyst on Yahoo Finance Live. “Often they do these rights deals to drive iPhone sales or to drive prime sign-ups because that has doubled the average e-commerce sales.”
Martin is a true Amazon bull, and she believes the stock is undervalued. The analyst priced AMZN at $175 after its second-quarter earnings report. Needham values AMZN's media assets at $514 billion and web services (AWS) business at $663 billion, which implies investors are “paying about $50B (0.2x) for $252B of 2022 Amazon’s e-commerce revenues.”
It’s All About the Ecosystem
If profiting is not a first priority, how would Amazon benefit from winning the streaming wars? The answer lies in one magical word: ecosystem. Amazon wants to bring as many customers as it can into its ecosystem and then generate additional revenue through its other streams.
And it doesn’t even need to be through e-commerce itself. According to the New York Times, Amazon’s streaming rivals such as HBO Max and Starz pay the e-commerce titan at least 15% of each subscription sold through Prime, which is estimated to generate over $3 billion a year.
Research firm Consumer Intelligence Research Partners (CIRP) estimated that, in June 2022, Amazon had 172 million Prime members in the U.S. alone.
And the most interesting part is how loyal they are. According to CIRP, 88% of consumers started their shopping journey on Amazon for their last purchase (not on Google or any other competitor’s website). It's not a coincidence Amazon’s advertising business has already surpassed YouTube’s revenue.
Our Take
Amazon’s capability of making Prime Video only an accessory for its true revenue streams is a blessing the competition doesn't have.
Why? Well, because filmmaking is a beating-the-odds business. Streaming services must hope that a large pool of viewers will have nothing better to do but to stick to each season finale of their shows.
Is there a way to know which shows will be a success before they are even produced? Well, that’s one use data analysis has. Netflix, for instance, is famous for tracking the viewership of each of its shows in order to decide which will receive another season and which will be canceled.
Still, many of Netflix's shows do not make it to a second season. Yes, heavy algorithms might bring some illusion of control, but in the end, film producing is still a gamble, and the gamblers who last the longest are usually those with the most stuffed pockets.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)
