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Why Amazon’s Content Cost Is Poised to Rise in 2019

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Feb. 13 2019, Updated 10:31 a.m. ET

Boosting perks for Prime members

Amazon (AMZN) spent $28.8 billion on technology and content in 2018, an increase from $22.6 billion in 2017. During an investor briefing last month following the release of results for the fourth quarter, which ended in December, Amazon CFO Brian Olsavsky revealed that the company’s spending on content acquisition has been increasing. He added that the trend will continue this year.

Digital video and music are some of the perks available to Amazon Prime members. These are the Amazon retail customers who pay an annual fee of $119 to enjoy benefits such as exclusive discounts on various items and free delivery to the home. Prime members are very loyal and high-value retail customers for Amazon. Consumer Intelligence Research Partners estimates show that Prime members spend on average $1,400 on Amazon retail purchases annually compared to $600 spent by regular customers.

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Amazon wants to draw more customers to Prime membership

According to Amazon, digital entertainment is helping drive Prime membership new signups and renewals, which is why the company wants to continue investing in content acquisitions. Alibaba (BABA) is another major e-commerce company with a division focused on digital entertainment. This division generated $944 million in revenue for Alibaba in the December quarter. In that period, Amazon generated $4.0 billion in subscription services revenue, which primarily comes from Prime membership payments.

Amazon doesn’t break out its content budget, but estimates from MoffettNathanson cited by Recode show the company spent $4.5 billion on non-sports video content in 2017. Netflix (NFLX) spent around $6.3 billion on non-sports video content in 2017. Walt Disney (DIS) and Comcast (CMCSA) are also planning to offer digital video services to compete with Amazon’s Prime video service.

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