Sander Saar, founder of AgentCDN, making videos work inside AI

Transcript

1. 0:00

   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. We have moved on from the world where it was the key revenue driver for studios and content owners. For now, this becoming the feature to increase lifetime value and sell other products and services. 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.

2. 0:28

   And in Disney's case, that might just be there to help you get into Disney Park and buy other additional experiences. Let's hear from Amazon's VP of Worldwide Content Licensing at Prime Video, Brad Beal, what he has to say. Why do they exist in Amazon's ecosystem?

3. 0:46

   So, you know, we at Prime Video, we live in the service of Prime. Our job is to acquire, help acquire Prime members, help retain Prime members, and help them them a reason to come back to our ecosystem over and over and over again.

4. 1:05

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

5. 1:32

   Who doesn't want some free content, right? 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. It actually, the flywheel can start in many different ways. In developing markets, for example, in India and Brazil, Amazon is seeing the Prime Video to become the primary way to acquire new Prime users. So this can be the first thing that they watch is The Jack Ryan Show or Marvelous Mrs.

6. 1:58

   Maisel to sign up to the trial, and then they expose them to additional shipping benefits and additional parts of Amazon's flywheel. In developed markets in the US and Europe, it's the opposite. The 2-day free shipping is what brings people in, and then Amazon gets them introduced to Amazon Prime Video to get them to retain, convert to Prime members, paying members, and then to retain them on the service. So the flywheel actually can be something that is much bigger.

7. 2:24

   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. Now I can get my groceries in within 2 hours. Ooh, I wanna stream some content on Twitch with no ads. I wanna stream some music through Amazon Music and so on. This is just the start of the beginning, but it is such a key part for Amazon And as they say, it helps engagement.

8. 2:48

   Right, so you start a 30-day free trial. When a customer engages with video during their 30-day free trial, they are, you know, measurably more likely to convert into a paid Prime membership. And while it's hard to prove causality, the lift is so large that there's no doubt. So we get lift on conversion rates. When they consume video during their 12-month first-year membership, They also renew at higher rates.

9. 3:19

   So there's lift there.

10. 3:22

    So the lift is all the way. It helps them to increase the conversion rate, but also renewal rates. So that's the reason why Amazon has continually been increasing the investment into its content business by almost tripling from 2014 to 2017 and adding another $2.5 billion to now $7 billion a year in 2019. But they're not just increasing the number of titles available, but they're actually playing the Disney game and also increasing the quality.

11. 3:51

    So having fewer titles but those big, big stories that get everybody involved. So they've increased their investment per title from $63 million in 2014 to now paying on average $100 million per title in 2019. 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.

12. 4:18

    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. 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. This is just one example of the sports fees that users are paying. And Amazon has already acquired Premier League and the UEFA Champions League licenses in Europe.

13. 4:45

    And you can see them doing more and more of that in the future because that just spins their flywheel even more. And then we'll have one less competitor to play with.

14. 4:55

    What from a business point of view for us, we're, 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 and it does that in a very direct way.

15. 5:12

    When Amazon wins a Golden Globe, it helps them sell more shoes. I just love that because that puts this into perspective on 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 2 times of that money, $1,400 a year. So actually getting someone to convert from free to Prime member is such a key part for Amazon's success in revenue.

16. 5:43

    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%. But what does it mean in monetary terms? That actually adds them additional 8.4 million Prime members.

17. 6:08

    So if they have additional 8% converting or renewing, that's 8.4 million additional users who are gonna pay their $120 a year for the membership and additional $1,400 that they're gonna spend throughout the year. So this equates to $12.8 billion spend, additional spend on Amazon. So if you look at that $2.5 billion increase in content spend from 2017 to 2019, that actually pays back pretty handsomely in 5 times return on investment.

18. 6:36

    So this is very impressive and important in Amazon's ecosystem or Amazon's flywheel. And this is actually not entirely new. 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%. That's when the content is created and it goes into the theatrical distribution, us going to see it in the cinemas.

19. 7:06

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

20. 7:33

    So if you look at some of the examples here on what that could look like, then in Frozen's case, what the Disney flywheel could look like is you're going to start and go to see the theatrical release in the cinemas or theaters. Then you might want to see that short episode that they launched on Disney Plus. Then you realize, oh, now I'm so hooked with Frozen. I want to buy some more Frozen microphones and clothes for your kids. And the sooner you know it, you're already in Disneyland in Paris at Frozenland.

21. 8:00

    With their kids. And they're like, I'm already paying for that $7.99 or $6.99 for Disney+. For just additional $5 or $6, I'm gonna get ESPN+ and Hulu. 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 Pixar and Nat Geo, and they also have amazing cruise line. And then you're part of the Disney flywheel, which is really, really strong and centered around that extremely strong connection with that IP.

22. 8:27

    But if you put that in perspective, it's nothing compared to Amazon Prime. By the way, this revenue per user is very simplified, and there's a lot of assumptions I made in there. While for Amazon they've actually reported this number in 2018, then for Netflix they're getting vast majority, if not 100%, of their streaming revenue is only for subscriptions. And there you can see they're hiring heavily in their consumer products and licensing area to diversify their portfolio.

23. 8:56

    But that's the current situation. And for Disney+, I've assumed that the vast majority of direct-to-consumer international revenue is driven by those subscriptions. And then the revenue per user is adding on the consumer products and the parks element, while they might not be directly correlated in one and the same person. And for Amazon, for Apple TV+, we've assumed 900 million users worldwide. But the return on that investment for Amazon is significantly higher.

24. 9:22

    And that's why they don't consider Netflix or Apple TV or Disney+ to be their competitors, because they make money in a very different way. In a way, like an unfair competitive advantage, or as Jeff Bezos says, they make money in a very unusual way. But this is definitely not the only way to make money. And something to highlight here is, for example, Netflix and HBO. Like, where is their flywheel?

25. 9:47

    Definitely, 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. Think about games and music and live shows and everything else that goes around it, more along the lines of Disney model. 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 create an unfair competitive advantage.

26. 10:16

    Thank you very much for watching. I hope you enjoyed this video. If you did, please give it a thumbs up. Let me know in the comments what do you think about the content becoming a feature and not the direct way to monetize, and subscribe to the channel if you want to keep updated with the future videos and hit the bell notification not to miss out on them. Thanks again for watching, and I hope to see you next time.