Amazon.com is reportedly considering a plunge into live Internet TV. It has caused no small amount of head-scratching among investors, considering how crowded that space is, and will continue to be.
Bloomberg has reported that Amazon is in content discussions with major broadcasters NBCUniversal and CBS, which shores up rumours of the live TV business.
Most obviously, the service could act as a complement to Amazon Prime, and add stickiness to that product among those that decide to take both services. But the upside from churn reduction is limited at best.
“As it is, all it would do is increase costs, which would result in lower margin and earnings, or force an increase in annual membership fees, which I don't think would be a good move at this time,” said investment analyst Gary Bourgeault, at Seeking Alpha. “If this is simply another service to entice new users of the platform, or to help retain existing users, my thought is Amazon could be positioning itself for the downturn in the global economy, where consumers will start looking for where they should cut spending.”
Amazon could be considering it as an advertising-supported service, but that would pose issues on the monetisation front. Web advertising is still far less lucrative than traditional television spots, and would leave the service little headroom to spend the kind of cash that would be needed to secure differentiating content, like sports. A margin-less or unprofitable service would negate all other benefits of launching the service.
One mitigating factor here is the fact that Amazon recently acquired Elemental Technologies, which provides encoding for over-the-top clients like Netflix. Elemental would provide an in-house engine for the service, which would cut down on costs.
Other possibilities are that Amazon will take a page from DISH Network’s Sling TV model, and offer ‘skinny TV’ bundles that would be easier to monetise and offer some differentiating consumer appeal by allowing them to choose what channels they pay for, to a certain extent; or, Amazon could be interested in creating its own channel, which would be included with bundled content from the networks or cable channels.
“There it could acquire or produce premium, original content, which would be a way it could differentiate its live TV offering,” said Bourgeault. “This is [also] where it could include ads consumers may not mind viewing.”
He also pointed out that a 24-hour shopping channel would offer clear synergies across the other parts of the Amazon business, offering a complementary and potentially huge revenue stream.
But so far, any such details have yet to emerge, leaving investors worried that Amazon is plotting a me-too service.
“Even though Internet live TV is in its infancy, the idea has been around so long, it almost seems like yesterday's news,” Bourgeault said. “There is uncertainty as to how profitable live Internet TV would be in the increasingly crowded space, which is for the most part, a commodity business. That's the main reason I don't like this, if Bezos is only going to compete at a low price level in the space.”
He added, “If Amazon is looking at acquiring content for the sole purpose of offering live streaming TV, I hate the idea. There is no differentiation there, and this is a market that is going to only increase in competitors over the next two to three years. And it'll take time to see who the winners and losers will be.”