Amazon sees 53% Prime growth in Q4, payoff from SVOD service

Amazon invested more than $1.3 billion in its Prime Instant Video service in 2014, and with good reason: It pays big dividends for the company.

In the company’s Q4 earnings report, CEO Jeff Bezos called the Prime service, which for $99 annually includes free second-day shipping, Prime Instant Video, music and books,  “a one-of-a-kind, all-you-can-eat, physical-digital hybrid,” and promised Amazon would “continue to work hard for our Prime members.”
Later, during an earnings call with analysts Thursday CFO Tom Szkutak, provided a little more background as to why the service — and video, particularly – was a big deal for Amazon.

“What we see is customers who come in through our Prime pipeline for a (free) video trial, those customers are converting at higher rates than other channels,” said Szkutak. “We see that customers that are video streamers, even though we have high renewal rates, they are renewing at even higher rates than others. We see those people who were customers who were streaming have very similar purchase patterns on the physical product side as those who don’t.”

And, he said, those customers are coming in and becoming part of an “integrated” customer experience.

In other words, they’re not just watching video, they’re buying products – a lot of them

“We see a very sizable step up (Prime members’) purchasing patterns,” he said. “And so the customers are certainly buying a lot more from us. And one of the things that we are seeing, another thing that we are seeing is certainly, as Jeff references and I quote, ‘Prime has evolved.’ It is both a physical and digital offering. It’s unique that way.”

Szkutak also said that, at least for the moment, Amazon was still considering how much – if any – advertising to put around its content.

It does currently, for example, run an occasional pre-roll with some of its original programming, but added “we really aren’t using advertising too much in that area.”

“We think the experience we have is great for customers; we get a lot of positive feedback on the content that we have there and the uninterrupted content, if you will,” he said. “And so I wouldn’t speculate on what we might or might not do there. But we are getting great feedback from customers.”

The Prime program is almost 10 years old, and it’s “growing at 53% year-over-year on a sizable base, tens of millions,” said Szkutak, who noted that the fastest growth was occurring in international markets. “It’s something that we are very focused on as we continue forward.”

Amazon’s experience is a good example of the power of a strong video product, especially for retailers and etailers, and the evolution of traditional entertainment business models.

This week, Overstock.com said it, too, would be rolling out a video service to its 2 million customers, first as an electronic sell through (EST) and video on demand (VOD) model, then, possibly, adding a subscription model as well. And, surprisingly, it said it would likely look to create original content targeted at its customers’ interests.

Stay tuned.

Amazon Q4 2014 by the numbers:

Amazon missed on revenue, but beat Wall Street’s earnings per share estimates… for the first time in a year-and-a-half. Investors rewarded it, bumping the stock price about 14% after hours.

Revenue was $29.33 billion, missing analysts expectations of $29.68 billion, with earnings per share of 45 cents, topping analysts 18 cent EPS estimates. A year ago, Amazon reported a 95 cent loss per share.

Net revenue was up 15% Y/Y, with gross margin increasing to 29.5% from 26.5% a year ago.

For the full year, Amazon reported a loss of $241 million, compared with net income of $274 million a year ago.

Stay tuned.

Jim O’Neill is Editor of Videomind and Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn