Amazon.com is significantly boosting spending on original video content in the current quarter, expecting to shell out more than $100 million in the period for productions it has in the pipeline.
That higher investment for the third quarter of 2014 represents a significant increase from Amazon’s spending in Q2, as well as a big jump year over year, CFO Tom Szkutak said on the company’s earnings call Thurdsay. During the third quarter, Amazon Studios will “be in heavy production” on series that it recently greenlit as well as several pilots it has ordered, he said.
“In terms of (video) content, we’ve seen just more and more Prime members are streaming free content,” Szkutak said. “When you look at the service that we have today, it’s improved dramatically over the past 12 to 24 months. And we really think it’s a great service and that’s why we’re investing in it.”
Amazon Studios, the e-commerce giant’s original video entertainment production group, is pouring more money into new shows as it looks to compete with the top dog in the subscription-video space, Netflix. Previously, Amazon has not disclosed details of how much it has been putting into originals, and Szkutak’s disclosure of the Q3 plans on the call indicates spending on originals is now more than a rounding error in terms of costs.
Netflix execs last fall said the company would double spending on original content in 2014. But overall, CFO David Wells said at the time, its investments in original content will represent less than 10% of overall global content spending. Netflix expects to spend $3.2 billion in 2014 on streaming content globally, which implies the company’s original programming costs will be less than $320 million for the year.
This spring, Amazon ordered six full series including supernatural thriller “The After” from Chris Carter (“X-Files”), pictured above, and “Transparent” from writer-director Jill Soloway. Amazon Studios bowed its first two shows, comedies “Alpha House” and “Betas,” last fall.
In addition, it has greenlit at least 10 pilots to be part of its third pilot wave later this year, including: “The Cosmopolitans,” “Hand of God,” “Hysteria,” “Point of Honor,” “Really,” “The Man In High Castle,” “Just Add Magic,” “The Outlaws,” and “Red Oaks” from Steven Soderbergh.
The pilots Amazon Studios produces are free for anyone to watch, and it uses feedback from viewers to help it pick shows to order. The full series are available exclusively to members of the $99-per-year Prime program, which includes free two-day shipping and access to the Prime Instant Video service.
Szkutak, on Thursday’s call, said Amazon’s Prime strategy is working as expected, with growth in customers taking free trials and then converting to paid membership. “Those customers are great customers,” he said. “In addition to streaming free content, they have great purchasing patterns, doing a lot of cross-shopping on physical products as well as converting to paid digital video and other digital products as well. So we’re very pleased with what we’re seeing there.”
Overall for Q2, Amazon missed Wall Street expectations on earnings. The company posted revenue of $19.3 billion, up 23.2% year over year, but reported a net loss of $126 million (versus a $7 million net loss in the year-earlier period). The bigger-than-expected loss, and a less-favorable outlook for Q3, drove Amazon shares down 11% in mid-day trading Friday.