Amazon is the world’s largest online retailer. But Amazon competes on low prices, meaning the company’s profit margins are slim, leading to surprisingly small profits in relation to other tech giants. Amazon has come up with creative solutions such as cloud hosting through AWS and subscription revenue in the form of Amazon Prime. And while Prime has been great for customers, it’s about to get even better for sports fans with Amazon in talks to stream live sports… Why would Amazon streaming sports make such a big difference for the company?
What’s In It For Amazon When It Comes To Streaming Sports?
In 2015 Amazon produced just $92 million a quarter in profits. Or about $400 million in profits for the year. Other tech giants made significantly more. Google, for example, earned around $3.93 billion in profits per quarter. Ebay, another consumer site, netted $682 million in the final quarter of 2015. How is that one of the biggest brands in the world in Amazon earns so little in comparison to its peers? And how does Amazon change that fact?
Amazon has a reputation for quality, customer service, and price. And when customers can have something good, fast, and cheap, consumers flock to it. But the downside of that is low margins for Amazon. The online retailer has warehouses full of inventory from manufacturers, and earns revenues by acting as a distributor. Thus, Amazon stores the goods, ships the goods, and pays for the labor costs of doing all of that. Amazon’s main weapon to combat that is Amazon Prime. Members pay $10/month or $99/year (with college students receiving a 50 percent discount) and receive free expedited shipping, streaming movies, TV shows, and videos, and other rewards.
Although Amazon has to cover the cost of shipping, that money comes out of the subscription costs paid by members, who would have to order quite a bit to actually eat into Amazon’s profits there. And even then, those costs are offset by all the Amazon Prime members who pay their membership fees but never order anything delivered.
The real money comes in through the streaming videos, though. There’s no overhead there as far as housing and shipping, as with warehouses and warehouse workers. Millions of people can watch an episode of Mr. Robot simultaneously without any additional cost to Amazon. That’s the same reason Netflix invests in original programming. The more people paying monthly to watch the same piece of content, the more profit the company makes. Amazon has already announced it plans to build out its video content platform, doubling its video content spending on original content in the coming year. And now Amazon is in talks to stream live sports for Prime members, meaning the company could see a huge bump in subscription revenue.
Amazon has already held talks for live game rights with major sports leagues including the NFL, NBA, MLB, and MLS. In addition to the major league sports, Amazon is also exploring other athletics such as surfing, lacrosse, and even cricket. Amazon has even asked broadcasters such as Disney and Univision for rights to games they aren’t airing. This “give us whatever you aren’t using” approach could be incredibly lucrative to Amazon, bringing in fans of sports teams whose games are not aired on traditional TV as new Prime members. Amazon could even offer the sports package as a standalone skinny bundle, producing additional revenue off the same product. The only big hurdle seems to be premium rights. The NBA has a contract with both TNT and ESPN until 2025.
The NFL deals exclusively with CBS, ESPN, NBC, and Fox until nearly the same time. As a foothold, the company may start with less-often viewed sports such as gymnastics and lacrosse, eventually building a large audience similar to how the retailer started off as an online bookstore.
Here’s a 7 lesser know benefits of Amazon Prime from Tech Insider:
Providing live sports to fans who want the immediate gratification of watching their favorite athletes perform will absolutely bring in new Prime members, driving up revenue and profits to offset Amazon’s fixed and variable costs. Amazon is betting big on it, and investors agree as Amazon’s (AMZN) shares are up on the news. As usual, expect shares to continue up, and for Jeff Bezos to knock this deal out of the park.
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