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Why Is Amazon Focusing on Its Prime Video Service?

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Amazon’s Prime Video service

In the previous part of this series, we learned why Amazon (AMZN) is pursuing live sports programming for its Prime Video service. In this part of the series, we’ll look at why Amazon is increasingly focusing on its Prime Video service.

The company stated on its 3Q16 earnings call that its Prime Video service was currently active in four countries: the United States, the United Kingdom (EWU), Germany, and Japan (EWJ). The company also recently launched its Amazon Prime Video service in India (EPI). Considering the rapid expansion of this service, Amazon is increasingly focusing on content.

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Amazon is focusing on beefing up the digital content on its Prime Video service. The company’s initiative to pursue live sports could be part of this strategy. However, sports streaming rights are an expensive business. Amazon expects its digital content spending to have doubled in 2H16 compared to 2H15.

The chart above shows that Amazon’s spending on technology and content has been steadily rising, from $3.2 billion in 3Q15 to $4.1 billion in 3Q16. However, since Amazon plans to double its investment in digital content, we can expect its spending on technology and content to rise even faster.

Rising trend of online television service

As is evident in the rising popularity of streaming services such as Netflix (NFLX), viewers are watching more and more content online. According to a Digitalsmiths 2Q16 video trend report, Netflix leads the OTT (over-the-top) market with a share of 53.7%, followed by Amazon with a 24% market share.

Hulu, Time Warner’s (TWX) HBO Now, and CBS All Access (CBS) are smaller players in this market. However, with Hulu’s proposed online television service, the streaming market could be set for an upheaval.

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