Amazon’s Hollywood spending soars, returns unclear

SAN FRANCISCO – Reuters

Amazon.com Inc is quickly ramping up the billions of dollars a year it spends on creating and licensing TV shows and films, signaling the retailer plans to be in show business for the long haul.

The issue came to the forefront of investors’ attention last week, when Amazon said a step up in its spending on video projects could be one of several reasons it might report a loss this quarter, even as it expects more than $39 billion in overall sales. 

The company’s shares, though up 33 percent this year, have dipped 5 percent since that warning. 

Wall Street analysts estimate Amazon’s spending on content will have tripled to more than $4.5 billion by the end of this year from 2014.

Catching customers’ attention with video now represents one of the company’s biggest investments, people familiar with the matter said. Amazon does not break out spending figures, and it declined comment on the subject. 

The company has visibly increased its footprint in Hollywood since opening a nearby studio in 2010, and picked up its first Academy Awards earlier this year. 

“We expect Amazon to quickly exceed Netflix’s annual spending on video,” said Needham  Co analyst Laura Martin, who estimates that Netflix Inc, the top online television service, will spend $6 billion on content this year.

The fast-growing investment in original video is just one of many simultaneous moves by Amazon into new areas, including brick-and-mortar retailing with its planned acquisition of Whole Foods Market Inc.
Amazon has offered little detail for investors on where it is spending extra on content, or why, making it hard to evaluate if the investment is working. Broadly, it has said video is a key benefit of its money-
spinning Prime shopping club, whose members tend to buy more goods from Amazon on top of paying a yearly fee.

“When we win a Golden Globe, it helps us sell more shoes,” Chief Executive Jeff Bezos said at a Recode tech conference last year. “People who use Prime Video ... renew at higher rates, and they convert from free trials at higher rates.”

One of the people familiar with the company’s operations said Amazon has data scientists and economists running computer models to determine how video influences whether shoppers sign up for Prime after a free trial period.  

In turn, deciding the budget for video spending involves a complicated set of factors, including subscription fees and the value of extra spending by Prime members, the person said.