Amazon: One Industry to Rule Them All?

For once, Amazon is playing catch-up.

The great disruptor is just another player in the entertainment space. Amazon Studios, its TV and movie arm, is still looking for a blockbuster like Game of Thrones to compete in an elite league defined by HBO, Hulu, and Netflix. Amazon Music is a follower behind Spotify and Apple Music.

But recently Amazon has made some moves in a bid to transform itself from a follower into a leader. Let’s take a closer look.

Amazon Studios

Amazon launched Amazon Studios in 2010 with a mission “to turn original stories into great entertainment” (according to its Facebook page). Like any studio, Amazon Studios has experienced its share of misses and successes. TV shows such as The Tick and movies such as Manchester by the Sea are examples of successes. In addition, as Billy Duberstein of the Motley Fool points out, Amazon Studios has helped Amazon attract affluent audiences to Amazon Prime, its premium membership tier that offers a number of benefits for a monthly fee. Amazon has offered original Amazon Studios content — typically prestige titles that appeal to niche audiences — as one of the incentives of joining Prime, and the strategy has succeeded in building Amazon Prime memberships.

But as Motley Fool reports, Jeff Bezos aspires for Amazon Studios to become more than a provider of prestige titles for a narrowly defined audience. He wants to draw more Prime members by offering blockbusters.

And in that regard, Amazon has a lot of work to do. Especially in the entertainment industry, perception is reality, and so far, Amazon Studios lacks the brand cachet of big players such as HBO, Hulu, and Netflix. As Ben Fritz and Joe Flint of The Wall Street Journal reported in October 2017, “Amazon Studios has been stumbling when it comes to producing content that attracts audiences and buzz.” They also noted that Amazon has struggled with a reputation for being unfriendly to content creators.

For Amazon Studios to take hold as a magnet for more Prime customers, Amazon will need to produce blockbuster content more regularly. And creating content (as opposed to distributing someone else’s) is not Amazon’s core competence. But Amazon recently made two important moves to demonstrate its commitment to a new direction:

The Lord of the Rings

In November, Amazon beat HBO and Netflix to secure the rights to a TV adaption of  The Lord of the Rings. Amazon will create a multi-season franchise including prequel content that opens the door to introduce new characters and dramatic plotlines. The rights reportedly cost $250 million – but creating the series could cost as much as $1 billion.

Buying the rights has created controversy (actor John Rhys-Davies, who appeared in the beloved Peter Jackson movie adaptations, said, “It’s just a disgrace. I mean, poor Tolkien must be spinning in his grave”). But you have to hand it to Jeff Bezos: he said Amazon is going to go for blockbusters. And with one announcement, he’s done just that. Amazon is taking a mighty gamble – and creating, for once, mighty buzz. As Devin Coggan of Entertainment Weekly wrote, “. . . Amazon has a real opportunity ahead of itself. There’s a reason Tolkien’s work has endured for decades, and with the right budget and creative team, this show has the possibility to be good. Really good, even.”

Hiring of Jennifer Salke

On February 9, Amazon announced that the hiring of NBC Entertainment president Jennifer Salke to run Amazon Studios. She replaces Roy Price, who resigned in October 2017 amid sexual harassment allegations. As reported in Adweek, she is credited for helping NBC improve from fourth place to first place among broadcasters in the 18-49 demo with shows such as the Chicago franchise and This Is Us.

Her reported strengths include a keen eye for successful TV shows; helming TV productions (she has worked on more than 40); being well connected; and getting along well with content creators. But she lacks experience in the film industry, contributing to some speculation that Amazon is dialing down its movie-making aspirations to focus on television.

As she prepares to take the helm of Amazon Studios, she also enjoys something crucial: a halo effect. Coverage of her joining Amazon has been largely favorable, a welcome contrast to the negative news that dogged her predecessor even before sexual harassment claims surfaced.

Michael Pachter, a media analyst with Wedbush Securities in Los Angeles, told The Los Angeles Times, “She is exactly what Amazon needs — a programming expert.”

Rena Ronson, partner and head of UTA Independent Group, told The Hollywood Reporter, “When you look at Amazon as a buyer and content creator and a dominant industry player, it’s a critical moment in its evolution. Many of us are especially looking forward to the fresh perspective and voice this new leadership will likely bring.”

Certainly all eyes will be on Salke when she takes over (her hiring date is unclear, but she is expected to join in March or April). The road to success for her will lead through Middle-earth. Let’s see what she does to turn The Lord of the Rings franchise into a reality – truly a defining, make-or-break moment for Amazon’s future in entertainment.

Amazon Music

With music, Amazon is on more familiar ground as a content curator – although the company might want to consider becoming one. Amazon’s strategy is to offer two tiers of music streaming services:

  • Prime Music, which offers a limited selection of songs to Prime members.
  • Music Unlimited, which provides more songs for a monthly fee.

Amazon’s strategy appears to be helping Amazon catch up to the two clear leaders of music streaming, Spotify and Apple Music. As reported by music blog MIDiA, in 2017, Amazon Music became the third-most popular paid subscription service. According to MIDiA,

. . . Amazon’s achievement is even more impressive than it first appears. Amazon’s music streaming adoption is concentrated among 4 of its Amazon Prime markets: US, Japan, Germany and UK. In these markets 35% of Amazon Prime subscribers are Amazon Prime Music or Amazon Prime Music Unlimited users. Most music subscription services think about their addressable market in terms such as total smartphone users with data plans, or in Apple’s case in terms of iTunes account holders. In both those scenarios subscribers have to be converted into paying users. But all Amazon has to do is persuade its 40 million odd Prime subscribers to start using its music app. Many of you will have seen blanket Amazon Prime Music advertising recently. Think about it. All that those ads have to do is persuade existing Prime subscribers to start using the music app for free, no new payment, no new commitment. It is as easy a sell as you could wish for. So, expect that 16 million number to grow strongly over the coming months.

Until recently, Amazon did not distinguish itself, though. Spotify has always been noted for its vaunted use of machine learning to offer the best personalized music recommendations in the industry. Apple is known for offering not only songs but also original content through Beats Radio, where artists such as Kendrick Lamar and Father John Misty appear. But on February 8, Amazon played its ace in the hole: the Alexa voice assistant. Amazon announced that it will make it possible for customers to create Amazon Music playlists with Amazon’s Alexa voice assistant, which is embedded in Amazon devices, most notably the Echo. I predicted this development in 2017, as it seemed inevitable that Amazon take advantage of synergies between the Echo smart speaker and Amazon Music.

This announcement is huge. The Echo dominates the smart speaker market, with an estimated 31 million units sold (a figure that undoubtedly jumped after the 2017 holiday season). The popularity of the Echo and the uptake of voice commands go hand in hand. As more people own Echo smart speakers, and as Alexa develops thousands of skills, users can use their voice assistants to do everything from listen to music to control their smart homes. Making Alexa smart enough to create and edit playlists taps into consumers’ adoption of voice just as Uber tapped into mobile behaviors years ago.

Now Amazon Music is creating a momentum that Amazon Studios is still trying to achieve.

What’s next for Amazon Music? Likely a better use of artificial intelligence to create more sophisticated song recommendations as Spotify does. AI is a passion for Jeff Bezos. And AI will fuel the future of music streaming.

I also see an opportunity for Amazon Music to become a stronger content creator. So far, with its Amazon Originals offering, Amazon Music has provided a limited number of music releases for emerging artists. The company has downplayed the effort, being careful to avoid the appearance of creating a record label.

But don’t count out Amazon getting in bed with major artists as Apple has done. Becoming a content creator allows Amazon to sidestep the issue of paying for rights to record labels to stream content on Amazon Music.

Of course, getting into music development also carries its own share of risks, namely that no one can predict who the next Kendrick Lamar will be. But signing artists and producing content would also inject the Amazon with a coolness that it lacks. Apple proved that smart partnerships with the right artists can help a brand achieve coolness in a short amount of time.

One Industry to Rule Them All?

Amazon long ago moved beyond selling products. Its original content parallels the development of in-house brands in industries such as fashion, but predicting the entertainment tastes of consumers is notoriously difficult.

It’s clear that Amazon has sailed into Netflix territory, becoming a content maker, not simply a host for someone else. Occasionally, Netflix, saddled with debt, is mentioned as a takeover target for Amazon. But Netflix is probably too expensive at this point, and it’s not clear how Amazon would fold Netflix’s subscription service into its already existent Prime user base. The purchase of rights for Lord of the Rings likely slammed the door on any acquisitions.

With music, Amazon is sticking to content curation, distinguishing itself through the Alexa interface. The uptake of Alexa and the Echo speaker will likely provide enough momentum for Amazon to catch up with Apple Music and Spotify. But Amazon wants to dominate, not just join the fray. To set itself apart, I won’t be surprised if Amazon makes a move to get into music development, too. An Amazon record label could also develop cobranding deals for artists with other businesses, with Amazon taking a cut.

Don’t count out Amazon Music making music in addition to streaming it.

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