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Amazon Kicking the Tires for an Online Pay-TV Offering

Brett Sappington: “Amazon could subsidize the price of the pay-TV service for consumers, planning to offset the cost with increased sales through Amazon’s retail business”

Brett Sappington – Parks Associates

Just a few short weeks ago, we reported on TDG analyst Joel Espelien’s shock report citing “credible” sources who indicated that Amazon is still working to launch a streaming TV service in the first half of 2018.

Intrigued by the possibilities such a move would entail, we reached out to highly respected TV & digital media analyst Brett Sappington of Parks Associates to get his take on the possibilities. His comments may be a bit uneasing to the existing stakeholders in the emerging live TV streaming market, DIRECTV NOW, Hulu, Sling and others:

I am sure that Amazon is kicking the tires for an online pay-TV offering…Amazon could subsidize the price of the pay-TV service for consumers, planning to offset the cost with increased sales through Amazon’s retail businessBrett Sappington – Parks Associates

Sappington went on to indicate that there were several reasons why Amazon would benefit from such a move:

  • Amazon can market such a service more cost effectively than its competitors, thanks to its Prime program and the popularity of its retail business.
  • Amazon could subsidize the price of the pay-TV service for consumers, planning to offset the cost with increased sales through Amazon’s retail business.
  • Advertising is a big part of the business model for live TV services. An online pay-TV service provides the opportunity for Amazon or its retail partners to target advertising to Prime Members.
  • Amazon could integrate live TV advertising and e-commerce, allowing consumers to purchase products from live ads with a single click.
  • Amazon could integrate the live TV interface, Amazon Channels, and Amazon Video to provide a comprehensive video service.
  • Amazon could also integrate Alexa, allowing consumers to control all of their content via voice.
  • Fire TV can serve as Amazon’s streaming box for subscribers of such a service.
  • Amazon Web Services (AWS) provides Amazon with the delivery capabilities for live TV online.

The last point in particular is specifically interesting in that Amazon already has a built in web services delivery infrastructure at its disposal. As an example, in a move that was finalized back in 2016, Netflix has moved all of its content over to Amazon’s delivery platform :

Netflix operates many tens of thousands of servers and many tens of petabytes of storage in the Amazon cloud. Yury Izrailevsky – Netflix

For Amazon, the benefits of this are obvious. In addition to controlling this vital aspect of the service – the delivery platform, Amazon could potentially leverage its experience with serving Netflix streams to optimize its own service – gaining a huge advantage in technical expertise and cost savings – over competitors.

In analyzing the full spectrum of such a deal, Sappington also weighed in on the potential downsides to such a move by Amazon:

  • For Amazon’s current video subscription service, Amazon already had much of the content ingested in their systems for transactional purchases and rentals. So, moving to an on-demand model for Prime Members was not a big reach. Live TV services, however, would be very different technology-wise from their current video delivery approach.
  • Amazon’s success with Amazon Channels allows Amazon to do what it does best – provide a retail marketplace to consumers, offering products created by others.
  • In terms of profitability of an online pay-TV service itself, Amazon would be taking on a huge investment and significant risk. They would also be competing against several other major players that are already in the market.

Amazon has shown that it is extremely adept at moving into new ventures. Especially with their ability to leverage the 63 million Amazon Prime subscribers to gain instant market dominance. If Amazon decides to launch their live TV service, it will transform the streaming TV industry overnight.

UPDATE: As a result of recent news that Amazon Fire TV Edition’s “On Now” feature has been ported over to Fire TV streaming devices, Sappington comments:

With respect to the ‘On Now’ feature: A channel guide feature better positions the Fire TV devices, and Amazon Channels, as a pathway for live content as well as on-demand content. If Amazon were to launch its own live TV streaming service, this feature would be a key element.

“By adding antenna-based access and tuning, Amazon could launch a line of Fire TV devices that integrates live streamed content with live over-the-air channels, creating a device targeted for cord-cutters”. Sappington says. Adding, “Though the feature is available only for premium channels at the moment, it can also provide benefits for CBS All Access, Univision Now, sports streaming services, or other OTT video services that offer access to live programming”.

What are your thoughts? Do you believe Amazon will launch a live TV streaming service this year? If you are already an Amazon Prime subscriber, would you drop your existing cable, satellite or streaming TV provider to use the Amazon live TV service? Share your views in the comments below:

  • Gary R Hurd

    I would not be surprised if Amazon launches a live TV streaming service. As an Amazon Prime subscriber for 20 years, I would not automatically switch to the Amazon live TV service. It would depend on what they’re offering, at what price they’re offering it and how well they deliver it.

    • Hi Gary, the best guess is that the service will be rolled into your existing Prime membership, so there will be no additional cost incurred beyond that annual subscription. However, for non prime customers, they would offer it as a stand-alone subscription.

      • Gary R Hurd

        Well Scott, I never thought about that. That certainly adds a twist to it. Even if they don’t offer everything I want, perhaps I could couple it with another service at a lower cost than what I’m paying now. It will be interesting to see if and how this develops. Thanks Scott!