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Why Is Amazon Prime Video Failing?

By Daniel VargaMarket OverviewMay 16, 2023 10:02
Why Is Amazon Prime Video Failing?
By Daniel Varga   |  May 16, 2023 10:02
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In early 2023, the video streaming market was led by Prime Video, which accounted for 21% of all market share.

Despite their large subscriber base, in 2022, not a single show from this streamer made it to the top 10 list of most viewed original series.

Amazon has to bear higher costs for content than its competitors like Netflix (NASDAQ:NFLX) because content spent is almost the same but Amazon makes way fewer shows.

Amazon became the first streamer to make an exclusive deal with the NFL but had to compensate advertisers due to viewer shortcomings. Inc (NASDAQ:AMZN) via Amazon Studios has become a major player in the streaming space in recent years but the issues with Amazon Prime Videos surpass its size and subscriber base. Excessive content spending without a clear hit show, difficult management style, bad reputation among creators, and no cultural impact shows makes Amazon Studios rank far behind its streaming competitors.

Leading market share (on paper)

A recent survey by JustWatch has revealed that Amazon Prime Video has surpassed Netflix to become the most popular streaming service in the US. JustWatch has gathered data from over 20 million of its own users across 59 different markets, including the United States. This data reflects their streaming video habits and is used to provide insightful analytics. In early 2023, the video streaming market was led by Prime Video, which accounted for 21% of all shares. Netflix followed with 20%, while Disney+ edged out HBO Max (14%) and secured third place with 15%. Hulu trailed behind in fifth place at 11%.

Amazon Prime Video has made an impressive collection of original and exclusive films; shows available, including The Boys, The Expanse, The Marvelous Mrs. Maisel and the most expensive TV series ever created - The Lord of the Rings: The Rings of Power. Prime Video is included as part of a full Amazon Prime membership, which costs $14.99 per month. The major factor in Amazon Prime Videos’ massive subscriber base is that every Prime member gets free access to Amazon Prime Video, Amazon Music, Prime Reading, Prime Gaming, etc.

Size is not everything

However, the large subscriber base and large market share on paper do not guarantee that Amazon Video is better than Netflix, HBO Max, or Disney+. Actually, it is quite far from it. Amazon has significantly boosted its content expenditure up to $16.6B in 2022, with approximately $7B being devoted to exclusive works. Amazon's expenditure on Amazon Originals, live sports, and licensed third-party videos totaled $7 billion in 2022 up by $2 billion from 2021’s $5 billion.

Despite their noteworthy standing in the streaming world, in 2022, not a single show from this streamer made it to the top 10 list of most viewed original series. The Original Streaming Service Series top list was dominated by Netflix and Amazon Video could only get 2 places out of the 15. The 11th place with The Boys and the 15th place with The Lord of the Rings: The Rings of Power. Looking at the Overall top list, 10 out of the 15 top titles have been acquired for the series. The list also comprises long-running shows such as Grey's Anatomy, Criminal Minds, Supernatural, and The Simpsons, and none of the top 15 places include any Amazon Video series.

After the pandemic was over, Netflix's hit series rose to newfound heights and set a post-lockdown record of 52 billion minutes viewed across 2022. This showed that Netflix had not lost its previous appeal and lived up to its established reputation despite subscriber growth struggles in 2022. Netflix subscribers spend an average of 3.2 hours per day on the platform while Amazon Video subscribers spend only approximately 50 minutes per day watching content on the platform. While some of Amazon’s shows have been popular with the public, there are also a few that have earned critical acclaim. A handful of their programs have even achieved success among critics. Despite the hefty investments made by Amazon, it is hard to place these shows in the same league as the works of other studios.

In addition, other streaming services have been more successful in terms of cultural impact, due to their award-winning shows and series. However, the same can't be said for Amazon Video, as their programs lack any significant cultural influence. The first season of The Lord of the Rings: Rings of Power, their most viewed original series worldwide, cost more than $500 million. Lord of the Rings series did deliver Prime Video’s biggest debut ever but it only had a disappointing 37 percent domestic completion rate and received several hard criticism from fans. At some point, Amazon had to suspend viewer ratings on the series in an apparent attempt to stop viewers post negative reviews.

Amazon Studios pays a premium

Amazon has a reputation for not treating employees well, recently it was fined by regulators for prioritizing speed over safety in its warehouses. And this doesn't go well with Hollywood because writers are currently striking to improve health care and pension plans, as well as dangerously long workdays. Rights that a lot of Amazon workers do not have at the moment and attempts to form unions have been unsuccessful. It has been suggested that Amazon may have to bear higher costs for content than its competitors. This could be due to their limited experience in streaming and thereby leading some to speculate that the content providers and stars are charging Amazon a premium. The numbers strengthen this theory. Amazon Studios spent $16.6B for content in 2022 while Netflix spent roughly the same amount to generate new content for its platform. 16 new original series are coming to Amazon Prime Video until the end of September 2023. At the same time, from almost the same content budget Netflix is coming with 30 original series including big names like The Witcher Season 3 Volume 2. Despite its years in the industry, Amazon still lacks experience compared to other leading streaming services, and based on these numbers it appears that Amazon Studios pay more for the same amount of content. Content released on prime video rarely reaches the same level of success as it would elsewhere. Just look at the Lord of the Rings series’ disappointing 37 percent domestic completion rate or look at the latest Emmy award winners, led by HBO (34), followed by Netflix (26), and Amazon far behind with only 7.

Content Spending habits

TV Shows and Series:
Amazon spends tons of money on content creation, and the total capitalized costs of video, which is primarily released content, and music as of March 31, 2023, were $17.4 billion up from $16.6 at the end of December 2022. It means Amazon could easily produce high-quality television if it wanted to, given the resources they have at its disposal. The head of Amazon Studios defends against these critiques by maintaining that their programming approach is an intentional strategy to reach out to the widest possible audience, instead of a lack of focus or vision. The company increased its content spending by an impressive 28% from 2021 to 2022 and it seems that it is increasing the content spending in 2023 as well.

However, this huge content spending does not lead to the best content or any content at all. Amazon has fairly infamously signed huge deals with creatives across the globe that have led to nothing. In 2019 Amazon signed a three-year deal with Phoebe Waller-Bridge, the creator and star of the show Fleabag, worth an estimated $20 million annually. Not only will she be co-producing a Mr. and Mrs. Smith TV adaptation with Donald Glover, but her unique talents will also be put to use. Waller-Bridge left the project and is yet to produce anything for Amazon. Despite this, her deal was recently extended with Salke, the Head of Amazon Studios, insisting that she'd be working on the streamer’s new Tomb Raider series as well as other projects. After spending three years and $60 million, Amazon still has nothing to show to the audience. This was not the only misstep of the management. Lena Waithe was given a two-year $16 million deal by Prime Video for which she did not produce any tangible results. She later moved to HBO Max leaving Amazon. Amazon Studios should learn from their mistakes but it is unclear what the future holds for such notorious deals and if they will happen again and again.

Amazon has been shelling out over $1 billion yearly for its NFL streaming rights. In 2021, Amazon became the first streamer to make an exclusive deal with the NFL, signing an 11-year pact for exclusive rights to Thursday Night Football at $1 billion per season. Jay Marine, the Head of Sports at Amazon, informed his team in a September memo that the launch event generated the most sign-ups for Prime ever in the United States during those three hours. Despite initial claims of the streamer's prediction of approximately 12.5 million viewers per game, Amazon reported a slightly lower number of 11.3 million viewers and Nielsen listed an even less 9.6 million average viewers as the season concluded. Amazon has declared that it provided financial recompense to advertisers due to the shortcomings, though details remain undisclosed.

Inside Tensions

Sports vs TV Shows:
The two main leaders at Amazon Studios, Jennifer Salke, Head of Amazon Studios, and Mike Hopkins, Senior Vice President for Video and Amazon Studios are regularly battling over major decisions. Hopkins and Salke had a fundamental disagreement when it came to the issue of money. According to an ex-insider, Salke's strategy was to obtain whatever was trending; on the other hand, Mike wished to reduce expenses for programs and focus more on American Football. Salke is in favor of TV shows, films, and content based on watch hours and ratings while Hopkins is in favor of sports contracts and live sports events.
Recently, Salke has been perceived as pivoting toward film. Several Amazon sources believe there was a tug-of-war with Hopkins over who would have oversight of the MGM film studio. Initially, Hopkins intended to hire former Fox and Paramount executive Emma Watts and have her report to him. But then Watts was out of the picture, despite having gone through vetting. At the start of 2022, it seemed that Hopkins will be responsible for the MGM transition and will become the “big boss”. He was doing town hall meetings with MGM staff members and naming executives. But Amazon announced in November that Salke, and not Hopkins, would have direct oversight of the film studio despite her very limited film experience. Salke chose Courtenay Valenti, former Warner Bros President of Production to Head of Film, Streaming, and Theatrical for Amazon Studios and MGM. In Salke’s letter to staffers announcing Valenti, it is clear that the new direction for Amazon Studios and MGM is film:“Our strategy now encompasses an expanded investment in film, including a robust theatrical plan and growing streaming program, in order to bring even more movies to film lovers all over the world.”

Amazon vs Amazon Studios:
There are many differences and disconnect between the two companies. Firstly, Amazon is an online retailer and cloud computing company while Amazon Studios is a creative content-generating Hollywood company. Secondly, Amazon’s small fraction of revenue comes from Amazon Studios and Amazon Prime video. The total Prime subscription revenue (which includes many other services) generated $9.7 billion in the first quarter of 2023 which is only 7.6% of its total revenue so Amazon Studios is likely not a priority for the management. In addition, only 11% want access to Amazon Prime Video, that’s why they subscribe to Amazon Prime which means Amazon Prime membership numbers are not primarily driven by its video content but rather because of benefits like same-day delivery.

Amazon is not equal to Amazon Studios

Of course, Amazon Studios is only a fraction of Amazon and if investors buy Amazon shares, they get much more important assets than Amazon Studios. As the management highlighted in its first quarter earnings call, to increase efficiency and the profit margins they need to make hard but necessary cost-cutting decisions and restructurings. I believe the management should pay much more attention to its streaming service because as it stands now it will very likely continue to struggle and burn money instead of earning its fair share within Amazon. That is why I rate (only) Amazon Studios as a strong sell.

Final thoughts

Amazon Prime Video allows Amazon Prime subscribers to have free access to a streaming platform but only a small fraction of subscribers use this opportunity. Amazon Videos has many internal issues starting with excessive content spending, no original series making it into the top 10 among viewers, and no cultural impact shows. Without a real hit show, a clear strategy, and overpaying for content how long will they continue?

Why Is Amazon Prime Video Failing?

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Why Is Amazon Prime Video Failing?

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