November 3, 2013

Amazon pushing its Prime

The online retailer is disrupting the way TV programs get made and trying to change the rules for how consumers pay to watch.

By Jay Greene
The Seattle Times

NEW YORK — Maybe the most astute observer of Amazon.com’s daring foray into television production is Clark Johnson.

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Two versions of the Kindle Fire

McClatchy Newspapers

He’s one of those journeyman actors who is immediately recognizable to television viewers, even if he’s not a household name. Johnson, who has starred in such hits at NBC’s “Homicide: Life on the Street” and HBO’s “The Wire,” is working on his latest project, “Alpha House,” produced for Amazon Studios.

The comedy about four Republican congressmen who share a Washington, D.C., house was created by “Doonesbury” cartoonist Garry Trudeau and stars Hollywood veteran John Goodman. Amazon put the pilot on its website in April to get feedback from viewers.

Johnson watched the pilot online as well. When the show ended, he joked, “I had a flat-panel TV in my shopping cart.”

To Amazon, that’s no joke. It’s the business model.

Amazon is attempting to disrupt the way television programs get made. The company is creating a new paradigm, dialing into its wide Web reach to tap what may be the world’s biggest focus group. The company posts pilots on its site and waits to see how viewers respond, sifting through the data to guide decisions about which programs get the green light.

But Amazon isn’t just disrupting the way programs get made. It’s also trying to change the rules for how consumers pay to watch their favorite shows. “Alpha House” will be available next month exclusively to subscribers of Amazon Prime, the $79-a-year service that also includes free two-day shipping for 15 million products.

Much like rival Netflix, Amazon wants to persuade customers to sign up for a service: Amazon Prime Instant Video, where they can watch more than 41,000 movies, television shows and, increasingly, original programs available only on its service. But unlike Netflix, Amazon can generate revenue from those customers in businesses well beyond streaming video.

Prime members are Amazon’s best shoppers. Analysts estimate that they spend three times as much as non-Prime shoppers, buying items such as books, diapers and even that flat-panel TV Johnson joked about.

To Amazon Chief Executive Jeff Bezos, programs like “Alpha House” are part of a larger bid to boost Prime’s appeal.

“It’s about making delight for Prime members,” Bezos said in an interview with The Seattle Times. “What can we do that would make somebody be a happy Prime member? If we can make great television for them, that’s going to be an element of that. And they pay us an annual fee for that.”

Bezos is a big believer in the Flywheel Effect, a concept introduced by business theorist Jim Collins in his best-seller “Good to Great.” The basic idea is that as small initiatives are added to the core business – the flywheel – their impact is magnified and the wheel spins faster.

Amazon Studios feeds the Amazon Prime flywheel. Video streaming makes the service more appealing to customers. That, in turn, adds more customers. As the service grows, Amazon is able to achieve scale, making operating Prime more efficient. That allows the company to add even more services, such as free digital book lending to Prime customers who also own Kindle e-readers. The more services added, the more customers are drawn to it, spinning that flywheel even faster.

Amazon may be playing the same game as Netflix. But it’s doing so under an entirely different set of rules.

“That Prime membership, we want that to be the best version of Amazon, of everything we do,” Bezos said.

Of course, Amazon is late to a game that often favors early entrants. Right now, that’s Netflix, whose early lead in subscriptions has given the company a flywheel of its own. The studios that own the content – movies and television series – want to have their programming in front of the largest number of viewers possible.

(Continued on page 2)

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