Content - A Feature To Sell Everything Else

Transcript

0:00 Speaker A: Hi, I'm Sander and I want to share with you the observation that content does not need to make money or not directly anyway. Speaker A: We have moved on from the world where it was the key revenue driver for studios and content owners. Speaker A: For now, this becoming the feature to increase lifetime value and sell other products and services. Speaker A: In Apple's case that might be to sell the iPhone and other Apple ecosystem products for Amazon that helps them to sell shoes and increase the lifetime value for their users and buy other services and and in Disney's case that might just be there to help you get into Disney park and buy other additional experiences.

0:35 Speaker A: Let's hear for Amazon's VP of worldwide content licensing at Prime Video, Brad Beal, what he has to say. Speaker A: Why do they exist in Amazon's ecosystem? Speaker B: So at Prime Video we live in the service of Prime. Speaker B: Our job is to acquire, help acquire prime members, help retain prime members and help them give them a reason to come back to our ecosystem over and over and over again.

1:05 Speaker A: It has truly become the reason to acquire and retain prime members and get them back over and over again. Speaker A: One of the examples in the user journey could be that the user is looking for something new to watch. Speaker A: They might go to IMDb which by the way is also owned by Amazon and see that button. Speaker A: Watch now on Prime Video. Speaker A: That's the only button the user sees. Speaker A: Once they click on that, they are there going into Amazon.com to sign up and watch with a 30 day free trial.

1:32 Speaker A: Who doesn't want some free content, right? Speaker A: But if that then gets you hooked and gets you into the Amazon ecosystem and then helps you to convert and retain longer, that's the magic key. Speaker A: It actually the Flywheel can start in many different ways in developing markets. Speaker A: For example in India and Brazil, Amazon is seeing the Prime Video to become the primary way to acquire new prime users. Speaker A: So this can be the first thing that they watch is the Jack Ryan show or Marvel's Mrs. Maisel to sign up to the trial and then they expose them to additional shipping benefits and additional parts of Amazon's Flywheel.

2:05 Speaker A: In developed markets in the US and Europe, it's the opposite. Speaker A: The two day free shipping is what brings people in and then Amazon gets them to introduce to Amazon Prime Video to get them to retain, convert to prime members, paying members and and then to retain them on the service. Speaker A: So the Flywheel actually can be something that is much bigger. Speaker A: You come in with the content, you find the shipping opportunity, then you find oh, I actually have this super low cost streaming device that makes my TV Smart Fire TV stick.

2:33 Speaker A: Now I can get my groceries in within two hours. Speaker A: Oh, I want to stream some content on Twitch with no ads. Speaker A: I want to stream some music through Amazon Music and so on. Speaker A: This is just the start of the beginning, but it is such a key part for Amazon and as they say,. Speaker B: So you start a 30 day free trial. Speaker B: When a customer engages with video during their 30 day free trial, they are measurably more likely to convert into a paid prime membership.

3:02 Speaker B: And while it's hard to prove causality, the lift is so large that there's no doubt. Speaker B: So we get lift on conversion rates. Speaker B: When they consume video during their 12 month first year membership, they also renew at higher rates. Speaker B: So there's lift there. Speaker A: So the lift is all the way. Speaker A: It helps them to increase the conversion rate, but also renewal rates.

3:27 Speaker A: So that's the reason why Amazon is continually been increasing the investment into its content business by almost tripling from 2014 to 2017 and adding another two and a half billion to now seven billion a year in 2019. Speaker A: But they're not just increasing the number of titles available, but they're actually playing the Disney game and also increasing the quality. Speaker A: So having fewer titles, but those big, big stories that get everybody involved.

3:55 Speaker A: So they've increased their investment per title from 63 million in 2014 to now paying on average 100 million per title in 2019. Speaker A: So it's not just increasing the volume, which they are, by the way, the largest as well, because they have the user generated content uploads as well, but they're also investing in some of the top shows in a way that everybody just has to see them. Speaker A: And they don't just stop with the dramas and what they're already known for, but they're aggressively going after TV as well.

4:25 Speaker A: If you look at some of the TV cables and their kind of last straw is sports, because half of their revenue, in some cases even more is coming from sports. Speaker A: This is just one example of the sports fees that users are paying. Speaker A: And Amazon has already acquired Premier League and the UFO Champions League licenses in Europe. Speaker A: And you can see them doing more and more of that in the future because that just spins their flywheel even more.

4:50 Speaker A: And then we'll have one less competitor to play with. Speaker B: From a business point of view, for us, we get to monetize that content in a very unusual way, because when we win a Golden Globe, you know, it helps us sell more shoes. Speaker B: And it does that in a very direct way. Speaker A: When Amazon wins Golden Globe, it helps them sell more shoes.

5:15 Speaker A: I just Love that, because that puts this into perspective, why this matters so much, and that's a very simple reason behind it, is that when a non Amazon prime customer spends only $600 a year, then a Prime member actually spends more than two times of that money and 1400 a year. Speaker A: So actually getting someone to convert from free to prime member is such a key part for Amazon's success in revenue.

5:43 Speaker A: And if you look at their retention rates, which is again directly correlates back to the content investment, if you look at the increases there, then they've increased their retention rates from 80% to 93% and more recently from 2017 from 85 to 93%. Speaker A: But what does it mean in monetary terms that actually adds them additional 8.4 million prime members.

6:08 Speaker A: So if they have additional 8% converting or renewing, that's 8.4 million additional users who are going to pay their $120 a year for the membership and additional $1,400 that they're going to spend throughout the year. Speaker A: So this equates to 12.8 billion spend additional spent on Amazon. Speaker A: So if you look at that two and a half billion increase in contest spend from 2017 to 2019, that actually pays back pretty handsomely in five times return on investment.

6:36 Speaker A: So this is very impressive and important in the Amazon's ecosystem or Amazon's flywheel. Speaker A: And this is actually not entirely new. Speaker A: Some of the top players in the content space, for example Disney, have been building their revenues across the board as well, while the media, the studio entertainment piece itself in revenue and earnings brings in 16%. Speaker A: That's when the content is created and it goes into the theatrical distribution.

7:04 Speaker A: Us going to see it in the cinemas? Speaker A: Not anymore, but the way we used to. Speaker A: Then it goes to media networks for distribution and that's also where the TV business lives. Speaker A: And then after that, as you can see, the vast and the large chunk of the earnings is coming in from experiences and consumer products and parks and now even more so from direct to consumer. Speaker A: So in Disney's world, yes, they start with that very strong IP and story, but, but then that extends around as well.

7:33 Speaker A: So if you look at some of the examples here on what that could look like in Frozen's case, what the Disney's Flywheel could look like is you're gonna start and go to see the theatrical reefs in the cinemas or theaters, then you might wanna see that short episode that they launched on Disney. Speaker A: Then you realize, oh, now I'm so hooked with Frozen, I wanna buy some more Frozen microphones. Speaker A: And clothes for your kids. Speaker A: And the sooner you know it, you're already in Disneyland, in Paris, at Frozen Land with their kids and they're like, I'm already paying for that.

8:03 Speaker A: 799 For 699 for Disney plus for just additional five or six dollars, I'm gonna get ESPN and Hulu. Speaker A: So you're gonna sign up to that and then before you know it, you're gonna find out that they also have Marvel and Pixel and Nat Geo and they also have amazing cruise line. Speaker A: And then you're part of the Disney Flywheel, which is really, really strong and centered around that extremely strong connection with that ip. Speaker A: But if you put that in perspective, it's nothing compared to Amazon Prime.

8:31 Speaker A: By the way, this revenue per user is very simplified and there's a lot of assumptions I made in there. Speaker A: While for Amazon they've actually reported this number in 2018, then for Netflix they're getting vast majority, not 100% of their streaming revenue is only for subscriptions. Speaker A: And there you can see they're hiring heavily in their consumer products and licensing area to diversify their portfolio. Speaker A: But that's the current situation.

8:58 Speaker A: And for Disney Plus, I've assumed that the vast majority of direct to consumer international revenue is driven by those subscriptions. Speaker A: And then the revenue per user is adding on the consumer products in the parks element. Speaker A: While they might not be directly correlated one and the same person. Speaker A: And for Apple TV plus we assume 900 million users worldwide, but the return on that investment for Amazon is significantly higher. Speaker A: And that's why they don't consider Netflix or Apple TV or Disney plus to be their competitors.

9:28 Speaker A: Because they make money in a very different way. Speaker A: In a way like an unfair competitive advantage or as Jeff Bezos said, they make money in a very unusual way, but this is definitely not the only way to make money. Speaker A: And something to highlight here is for example Netflix and hbo like where is their Flywheel? Speaker A: Definitely. Speaker A: There's also great opportunities in building flywheels around strong IP and thinking about how you can extend that beyond just making money with content.

9:55 Speaker A: Think about games and music and live shows and everything else that goes around it. Speaker A: More along the lines of Disney model. Speaker A: But even more importantly and more relevantly these days is controlling the access to the consumer which we will be talking about in the next videos, because that's the other way to to create an unfair competitive advantage. Speaker A: Thank you very much for watching. Speaker A: I hope you enjoyed this video. Speaker A: If you did, please give it a thumbs up.

10:21 Speaker A: Let me know in the comments. Speaker A: What do you think about the content becoming a feature and not the direct way to monetize and subscribe to the channel. Speaker A: If you want to keep updated with the future videos and hit the bell notification not to miss out on them. Speaker A: Thanks again for watching and I hope to see you next time. Speaker A: Sam.