Why Amazon plans to invest heavily in video content in 3Q

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Aug. 11 2014, Updated 1:27 p.m. ET

Amazon plans to invest $100 million on acquiring more video content in 3Q

In the previous part of the series, we discussed Amazon’s (AMZN) operating margins and why it continues to decline this year. We discussed that Amazon continues to invest heavily in strategic areas such as cloud services and emerging markets such as India and China. During the conference call to announce 2Q14 earnings, Amazon’s management mentioned that it also plans to ramp up spending to acquire more video content in the third quarter. This investment will be close to $100 million.

Amazon surpassed Hulu and Apple in the U.S. video streaming market

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Amazon’s investment in acquiring more video content has started to produce results. According to a report from Qwilt and as the previous chart shows, Amazon’s Prime Instant Video service has surpassed both Hulu and Apple (AAPL) in terms of the volume of video streaming traffic consumed from the site to U.S. broadband subscribers. According to this report, Amazon’s traffic volumes increased by 94% over the previous 12 months, while in some U.S. operator networks, between March, 2013–March, 2014, Amazon’s streaming video traffic increased nearly 300%. However, Amazon still lags behind Netflix (NFLX) and Google’s (GOOGL) YouTube, which are the leaders in this market with a combined share of 74%.

Amazon inked a deal with HBO earlier this year

A few months ago, Amazon announced that it had reached a deal with HBO for its video streaming service that will offer some older shows starting this month. This is the first time that HBO, owned by Time Warner (TWX), has licensed its programs to an online streaming service. Also, HBO Go will be available on Amazon’s Fire TV by the end of this year. These are clear indications that Amazon has started to take the video streaming business seriously.

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