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Why Amazon’s Content Saw Such Large Growth in 2H16

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Amazon’s big spending on video content

One of the major factors behind Amazon.com’s (AMZN) widening losses has been the large increase in content costs related to acquiring video content and producing its own content. The chart below shows how this costs for Amazon have been growing a fast pace for the past few quarters. According to Amazon, it doubled its investment on video content and related marketing in 2H16, as compared to 2H15.

Amazon Tech and content spending1

A few weeks back, Amazon announced the launch of its Prime Video service in more than 200 countries. Its aim is to create original content so that it can hold worldwide rights to its content at cheaper costs, as compared to content from third-party providers.

Through this service, Amazon intends to monetize popular original series like Mozart in the Jungle and The Man in the High Castle as well as shows like The Grand Tour.

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Will live sports streaming give an edge?

Early in 2016, Netflix (NFLX) completed a similar move by launching its service in more than 200 countries. Netflix intends to produce 1,000 hours of original programming and to spend $6 billion on original content in 2017. However, Amazon wants to provide an edge to its video service by moving into live sports streaming area.

According to a report from the Wall Street Journal, adding live sports to Amazon Video could significantly differentiate its service from rival offerings by Netflix, Hulu, Sony (SNE), and Alphabet’s (GOOG) YouTube. If successful, Amazon’s expansion into live sports could come as a major upset for traditional pay-TV providers because, despite the rapid growth of the streaming video market, sports enthusiasts still have to turn to Walt Disney (DIS) and other traditional pay-TV providers for sports entertainment.

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