Will Amazon come out on top in TV?

This article was first published on City A.M. here

Not content with battling premium video services like NetflixAmazon now has YouTube in its sights.

The launch of new user-generated content platform Amazon Video Direct (AVD) will allow video makers to upload their content to the site, where it can be watched by tens of millions of Prime subscribers. But becoming a one-stop shop for premium and user-generated video is an area where YouTube has struggled. Will Amazon have more success?

The new platform

The focus of AVD appears to be broadcast quality user-generated content, not the everyday content domain where YouTube reigns supreme. “That’s a space Amazon can fill,” says Thomas Clark, head of video at iProspect London. “YouTube doesn’t pay enough, and Vimeo is not a go-to destination.”

Indeed, AVD’s proposition looks attractive to video creators. Amazon is offering prestige in showing user-generated work alongside award-winning studio productions like Transparent, and a monetisation model which is more flexible than YouTube. Royalties will be paid for hours viewed, or creators can make content free for a 50 per cent share of the ad revenue. The company is also throwing in a $1m bursary to be distributed between those who create the top 100 videos uploaded each month, a system similar to the one it uses to encourage ebook authors to self-publish through its site.

If Amazon appears foolish for taking on a goliath in YouTube, its motivations may have been misunderstood.

“People subscribe to Amazon Prime for its free delivery service, and the video content encourages them to stick with it,” says Ian Whittaker, media analyst at Liberum. Amazon Prime provides the firm with even more data about its customers, and allows third-party services and channels to access an engaged customer base.

Amazon will likely see this free user-generated content as a way to lure viewers in, before encouraging them to pay for a Prime subscription, and buy and rent content which is not free on the service. “It can’t hope to fully compete with such an established name as YouTube,” says Felim McGrath, trends manager at Global Web Index. “AVD is another step in the company’s drive to increase Prime membership and bring consumers into its ecosystem.”

Crucially, AVD will provide Amazon with exclusive high quality content without it having to shell out on licensing. A recent report by the Boston Consulting Group (BCG) says that exclusive content is becoming an increasingly strategic asset for the likes of Amazon and Netflix, both of which are investing heavily in creating and distributing original programmes as a means of attracting subscribers and keeping them hooked. BCG estimates that Netflix’s spending on original programming will jump to $550m next year, compared with just $5m spent in 2012.

Unsettling the competition?

“Amazon is entering a more aggressive phase,” says Whittaker. “Netflix has a great brand, but there’s a natural ceiling to a service which doesn’t have local content. Amazon has done books well, and has a lot of consumer data. User-generated content now provides an opportunity to take share away from YouTube and Google.” 

The tech titans see online content as a key battleground. YouTube launched its own subscription service – Red – last year, providing exclusive, ad-free content. Figures have yet to be released, but Google boss Sundar Pichai has said that it has been “very well received”. A live TV service may also be in the pipeline.

The crucial question is, will consumers be happy to pay for more than one “over-the-top” TV service in the long term? The market is maturing, but the pace is slow. “It’s a very competitive space,” says Alex DeGroote, media analyst at Peel Hunt. “And video on demand services are increasingly positioned to take share from TV advertising budgets.”

Amazon's share price jumped on the news of its latest venture. Whether AVD can do any lasting damage to YouTube remains to be seen