
Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video - kemper
http://allthingsd.com/20121116/netflix-ceo-amazon-losing-up-to-1-billion-a-year-on-streaming-video/
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incision
Personally, my use of Prime is significantly different than Netflix.

I've rarely used Prime free content, but I have rented a number of recent
movies and "bought" a few recent seasons of TV shows.

Off the top of my head, Amazon has collected more cash from me for video
streaming in the last 6 months than Netflix, but I've been consuming probably
10x more data from Netflix.

I wonder if / how Hastings comparison accounts for this?

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scott_s
This is my usage exactly. I won't rent through Sony because they impose a 24
hour period - I rarely have two consecutive hours to spend watching a movie
any given day. Amazon uses a 48 hour period, which I can live with.

~~~
timo614
Yeah I use Amazon Prime for all of my renting as well...

It's very easy to get the movies on my xbox, they cost about half as much as
they would on itunes to rent, and they have a much better selection of movies
I can see than Netflix since I can rent the ones I'm actually interested in
seeing.

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koide
I loved how the spokesman turned around the negativity in one swoop. From
"Amazon's losing money" to "it's right that Prime Instant Video is an amazing
value for customers."

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SatvikBeri
The technique of answering any question with a positive is also extremely
useful in job interviews or sales.

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tomkit
I guess Bezos is really serious when he tells shareholders his company is
willing to not maximize profit in the short term for long term investments.

~~~
simonh
And he was telling them the same thing 5 years ego. And 5 years before that.
And 5 years before that as well. I wonder what he'll be telling them in 5
years time, or in 10 for that matter.

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MSM
He'll probably say something along the line of

"In '97 Amazon had market cap of $291M, in '02 it was 3.5B, in '07 it was $20B
and today it's $100B. I don't know... seems to be working."

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gpayan
IMO, this is not an issue for Amazon as Amazon Instant Video is still a
support business for Amazon. It is used to sell more Prime subscriptions (and
more Kindles as well). It seems that now Amazon is testing if it could be a
viable standalone business but it’s not guaranteed.

It seems like SVOD services are generally “support businesses” that aim to
promote a company’s main product/service that is sold at a higher margin. For
instance, DISH Network offers access to Blockbuster SVOD platform as an add-on
to its pay-TV subscription (the idea here is to get more pay-TV subscribers).
Comcast XFINITY SVOD service is provided on top of other Comcast services and
aims to attract more pay-TV and broadband subscribers. We could even argue
that Netflix Instant Streaming was first used to support Netflix “DVD by Mail”
business (even if it might not be completely the case here).

The margins on those SVOD services are low compare to the “pay-TV or “DVD by
Mail” business. In Q3 2012, Netflix contribution margin for its domestic
streaming business was 16.4% vs 48% for its domestic “DVD by Mail” business.
As pointed out earlier, for SVOD to work, you need volume. Thus, Netflix
strong push for its international expansion. Amazon might pull it off, but it
will require significant investment outside the US to work out.

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kbutler
> Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video

I'm skeptical.

This posits that Amazon is spending about 1/4-1/2 of what Netflix spends
(Netflix on track for $2.1 billion this year), to stream about 1/20th as much
(Netflix 33% of internet traffic, Amazon 1.8%), from a greatly inferior
content catalog.

I think Bezos & Co. can cut better deals than that.

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wpietri
How would he do that?

Hastings says the estimate is based on head-to-head competition. If I'm
selling streaming rights for property A, I'm going to go with the people who
pay me the most. If Bezos says, "But gosh, we aren't showing it to as many
people," my answer will be "Tough!"

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wtvanhest
You are probably right, but you (and Hastings) may not be. If I am a
negotiator at Amazon, I am cutting the following deal:

\- Titles we provide free to our customers

\- Titles we provide for a charge which we split the fee with content producer
at some ratio

\- Placement of those for pay titles on the site so they are bought more

I'd sum the value of the contract and show how even though Amazon will not
give as much cash in the deal, the content producer will net a bigger positive
number.

Obviously this is speculation, but I could see that playing out easily.

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rogerbinns
This sounds somewhat bizarre. For physical goods it made sense as you had to
build big expensive distribution centres. This means big fixed costs and low
variable costs.

For streaming video delivery the fixed costs are almost zero while the
variable costs are proportional to the amount of video watched.

The article that the deals Netflix and Amazon do with the content providers
are fixed cost deals - ie pay a certain amount of money no matter how many or
how few customers watch the content. If they are variable costs deals (per
view) then it would be mostly insane doing them for more revenue that you get
from the viewers.

Does anyone know how these content deals are structured in terms of fixed
amounts versus per view amounts?

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travem
I imagine there are various fixed and variable parts to some of these deals
(no inside knowledge).

Imagine though that you are selling exclusive rights to your catalog for a
fixed period of time (say 2 years). You would want to maximise revenue while
managing risk. As a content provider you may not have sufficient information
to figure out what the likely number of views will be in two years times as
there are multiple factors you don't have much historical data on (viewer
behavior, projected growth rate). Fixed bids are a lot easier to compare than
comparing how you think Amazon Instant and Netflix growth rates and customer
behavior will change over time.

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rogerbinns
If I was the content owner I would do the deal as per view, and with overall
minimum payments. That way you get a minimum payment for your time and you
share in the success of the content.

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riledhel
Doesn't a large portion of Netflix's infrastructure run on top of Amazon Web
Services? Why doesn't the article clarify that?

I think Amazon is not losing money at all. They're supplying a really big
customer with resources and selling at retail as well.

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scott_s
Amazon providing Netflix with infrastructure does not figure in. The estimate
(which I agree is suspect) has to do with the cost of acquiring content
rights. If Amazon is spending more money on content rights than they pull in
from users consuming that content, then they're running their streaming
service at a loss. Netflix running on their hardware doesn't factor in.

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linuxhansl
At least Amazon prime streaming works on Linux (if Flash can be called
"working", but at least it's better than the abomination called Silverlight).

The only reason why I still use Netflix is that fact that I get a MacBook from
work (didn't get a choice in that matter)... And even then I am considering
canceling the streaming subscription.

I don't get Netflix... Or maybe I do. Isn't their CEO on the Microsoft board?

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PaulMest
Reed Hastings announced he is not seeking re-election from the Microsoft board
after this year [1].

[1] [http://techcrunch.com/2012/10/09/reed-hastings-wont-be-
retur...](http://techcrunch.com/2012/10/09/reed-hastings-wont-be-returning-to-
microsofts-board-will-skip-re-election/)

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rgbrgb
I think they'd do well to devote resources to making browsing videos less like
shopping on Amazon. When I log into Netflix, I feel like a valued customer.
They go out of their way to find stuff I'd love to watch and NEVER try to sell
me anything. I've payed money and they want to give me a great service.

Comparatively, browsing videos on Amazon feels like I'm in Walmart. I am
bombarded with continuous advertisements, reminded that I can buy the movies
I'm looking at on DVD and BlueRay (almost throwing the shitty streaming
quality in my face), and being sold a Kindle. Is nobody in charge of the user
experience for Amazon Instant Video?

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dangrossman
Hook up a Roku or other set-top box to your TV. Run the Amazon Instant Video
app. It works just like Netflix. No store, no ads, just flipping through box
art to choose movies or shows to watch.

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khuey
Or install Adblock Plus.

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dangrossman
AdBlock Plus would not change anything. He's complaining about Amazon Instant
Video's web interface being part of the Amazon store, so when browsing videos
to watch you also see the list of other formats you can buy each in, related
products, 'customers also bought' products, etc. These are not ads and AdBlock
does not remove them as it'd simply be wiping out the whole page.

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dromidas
Hollywood and movies licensing isn't suitable for competitive businesses. One
site can do it (netflix) but once more than one tries it everyone will lose.
The source of the problem is that Hollywood itself is a monopoly, it gouges so
much from the distributors like Netflix/Amazon that any attempt to divide
subscribers to their services between each other will end up killing both
parties.

Same thing happening with Spotify and Rdio.

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tsotha
Reid is saying Amazon is paying half of what Netflix is paying for a tiny
fraction of the latter's catalog and an even tinier fraction of Netflix's
volume? If that's what he's saying I'm hard pressed to think he actually
believes it.

Also, Amazon can afford to lose a bit (probably not a billion, though) on its
streaming service if 1) more people sign up for Prime as a result and 2) Prime
members buy more inventory from Amazon.

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IheartApplesDix
My back of the armchair calculations estimate that he's off by about 2 orders
of a magnitude.

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b0b0b0b
I wonder if Netflix is considering standing up their own data centers, given
how much their business relies on Amazon.

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AmVess
"Hastings says Amazon is losing between $500 million and a $1 billion a year
as it acquires streaming video content rights."

I flat out ignore estimates like this. A sway of a few percent, sure...but 500
million to a billion is laughable at best.

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msellout
500 million to a billion is on the same order of magnitude. Seems reasonable
to me.

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AmVess
500 million to 1,000,000,000 is a laughably fantastic estimate.

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nirvana
It's ok, they'll make it up in volume.

I'm only half joking, the fact that PRIME is part of their retail sales
program means that they do make more sales to PRIME members. If their deals
for content are cheap enough, it could work without significant changes...
eventually.

I'm just amazed that they are able to do this for so long. Their P/E (in
profitable quarters) is astronomical.

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erikpukinskis
> I'm just amazed that they are able to do this for so long.

They keep wiggling into new growth markets. If they were just a bookstore
their stock price would've collapsed. But they've gotten into:

* Retail (a multi-trillion dollar market in the U.S. alone)

* Media sales and rental (much smaller)

* Cloud computing (something like $100 billin and growing)

* Consumer computing devices (something in the low hundreds of billions)

All they have to do to justify their P/E is be in a position to credibly say
they can get a serious slice of these markets. And honestly, they're
positioned extremely well in all four:

* In retail they're indisputably at the lead of home shopping, which seems to be the future.

* There one of a handful of companies with serious share in movie/music distribution at this point

* They're probably the biggest cloud provider, one that other cloud providers are _built_ on.

* Given the growing importance of media as a selling point and revenue stream for device makers, and great traction in tablets, they're positioned very well in devices too.

