Amazon: A very modern media mogul

Jeff Bezos is shaking up film and newspapers, but both sectors will test his customer-first, profitslater strategy
The small circle of media moguls who control Hollywoods biggest movie studios will dust off
their tuxedos next month for the 2015 Academy Awards. The likes of Rupert Murdoch, of 21st
Century Fox, and Jeff Bewkes, chief executive of Time Warner, each have an interest in the
outcome with Birdman (Fox Searchlight) and American Sniper (Warner Brothers) vying for best
picture.
The moguls may feel an extra pang of anxiety this year, thanks to the arrival in Hollywood of an
interloper from Seattle. Jeff Bezos, the founder and chief executive of Amazon, has set his sights
on challenging the film industrys well- worn production and distribution model, echoing his
grand reshaping of the book industry.
This week, hard on the heels of its surprise wins at the Golden Globes, when its Transparent
series won two awards, Amazon unveiled plans to acquire, produce and release a dozen films a
year. With Woody Allen signed up to develop a comedy series for Amazons video streaming
service, Mr Bezos seems determined to shake up media content just as he transformed retailing.
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In the past two years, Mr Bezoss media interests have extended far beyond Amazons core books
and online retailing business. In 2013 he bought the Washington Post for $250m, and has set
about driving a tech-led revival in newspaper publishing with the development of digital
products. At the same time, Amazon was ramping up its streaming video service, building a
presence in Hollywood and trying to establish itself both as a new buyer of programming and as a
potential competitor to Netflix, the market leader in video streaming.
There are clear reasons for Amazons interest in video, says James McQuivey, a media analyst
with Forrester Research. Amazon, like Google and Apple, is intent on building the infrastructure
for your digital life, he says. The average person in the western world spends four to five hours
a day on some kind of television or video experience. If you are trying to plot a path to world
domination, as Amazon and Bezos are, you cant ignore those four to five hours.
Bundled offering
Unlike Netflix, which offers video streaming as a standalone, monthly subscription, Amazons
digital video service is bundled with Prime, its $99-a-year service that covers all delivery fees for
its merchandise. Like Netflix, it was developed to build up a library of content: it licensed HBOs
back catalogue, giving it the right to stream some of the premium cable channels biggest hits
such as The Sopranos and Deadwood. And it has appropriated a model established by Netflix,
which has scored with original programming such as House of Cards, by commissioning series of
its own.
If Amazon is able to use video streaming to lure more customers to sign up for Prime, it may
generate more sales of other merchandise, analysts say. Competing with Netflix without
charging money to be a member is a unique selling point Amazon has, says Mr McQuivey. Its
whole model relies on making money from your total spend, even if on some individual
transactions they lose money. If they sign you up to Prime and you watch video it makes you
more likely to use their other services.
Amazon is playing catch-up in streaming: most of the market is occupied by Netflix, which this
week revealed that it increased its number of subscribers to 57m.

Netflix accounts for almost 35 per cent of downstream internet traffic in the US in primetime
evening periods, according to Sandvine, which measures broadband communications. Amazon
online video, by contrast, has doubled its own share over the past 18 months but is responsible for
just 2.5 per cent of primetime upstream traffic.
Amazon certainly has the resources to buy top television shows and movies, which will help it eat
into Netflixs lead. This week, Netflix said it would issue $1bn in debt to fund further
international expansion and to pay for more original content, building on the $300m a year it
spends on its own programmes.
Amazon intends to use its Golden Globes success with Transparent, a series about a transgender
father, to lift its standing in Hollywood. Jeffrey Tambor, who won a best actor at the Golden
Globes, and Jill Soloway, the shows writer and creator, were fulsome in their praise of the
company when accepting their awards, with Mr Tambor saying Amazon was his new best
friend.
Larry Salz, a partner at the United Talent Agency who sold Transparent to Amazon, says the
company has been very collaborative and very aggressive in terms of pursuing top talent.
Amazon, he says, was willing to back a personal story that did not initially appear to be the type
of series to draw a big audience. I dont know if it would have been the same experience on
other networks ... Amazon gives people the freedom to make shows that dont necessarily have
the most commercial or far-reaching appeal.
This is in line with Amazons strategy over the past 15 years in other businesses, where the
companys profits have taken a back seat to the efficiency of its service and customer satisfaction.
It is a strategy that has recently begun to be questioned by some investors, with its shares
tumbling more than a third in the past 12 months.
One factor was its new Fire smartphone, whose dismal sales forced the company to take a $170m
charge on production costs and unsold inventory, and slash the price of the phone from $199 to 99
cents. The phone provided an easy excuse for people to wake up and realise that profits werent
there, says Mr McQuivey. But its not like the profits were ever there.
In Hollywood, Mr Bezoss customer-first, profits-later strategy will be put to use creating a place
where artists want to work: hence Amazons recruitment of Mr Allen, whose movies win critical
acclaim but rarely are blockbusters. The deal with Mr Allen has earned the company begrudging
respect in certain Hollywood circles. It wont make them any money but its put them on the
map, one senior media executive told the FT.
Delivering the Post
It is debatable whether owning the Washington Post will make Mr Bezos any money, either at
least, any that will make a difference to his vast personal fortune, which Forbes estimates is worth
$27bn. But it has certainly raised his profile in political circles.
There was hope when he bought the newspaper that Mr Bezos would be a benefactor of the
internet age. We may be going back to an era where there will be people with deep pockets and
deep resources who will be committed to journalism, Katharine Weymouth, the then publisher
and the last generation of the Graham family to be involved with the Post, said after the deal.
But there was caution, too, that Mr Bezoss true motive might be to buy influence among
Washingtons elite, particularly as Amazon enters new industries and faces new tax and
government regulations. And given the pressure the company has put on the book publishing
industry, many wondered how Mr Bezos would view the Posts long print legacy.

After completing the deal he sought to reassure the Posts staff that he would not be involved in
day-to-day management. Nearly 18 months later, the Post, thanks to Mr Bezoss cash, has hired
editorial and software engineering staff and launched a range of digital products. Ms Weymouth,
whose great-grandfather, Eugene Meyer, bought the Post for $825,000 in a 1933 bankruptcy
auction, was replaced as publisher by Fred Ryan, founding chief executive of Politico, which was
launched in 2007 as a digital competitor to the Post.
Online traffic growth soared at the Post last year, which executives say shows the investments are
paying off. Mr Bezos came in with ideas, questions and capital, says Marty Baron, editor.
Now we have the capacity to actually execute on these digital experiments.
Executives and staff say Mr Bezoss influence in the newsroom has been limited to the new staff
made possible by his investment. He is more involved on the business side, in discussions about
strategy and in near-daily consultations with the papers chief technology officer, who has built
up a robust engineering team developing software that is used in-house and may soon be licensed
to other publishers. Shailesh Prakash, the Posts joint chief technology officer and chief
information officer, has credited Mr Bezos with helping him recruit better developer talent as the
paper ramps up its digital offerings.
The Amazon founders influence was also clear on a new Post app, launched in November, which
put two daily digital editions of the paper on Amazons Fire tablets. It was the first collaboration
between the two companies since Mr Bezos bought the Post.
Mr Baron described the project as recreating the bundle of the print paper for the digital age.
Some speculate further tie-ups may involve Amazon taking over delivery of the paper, in more
print and digital formats.
Its clear they would like to position the Post as the third national paper [alongside the New York
Times and the Wall Street Journal], Mr McQuivey says. Its not impossible but we would have
to see a unique content strategy.
Taking on Tinseltown
As Amazons flurry of Hollywood moves suggest, Mr Bezos has got the content bug. And he is
becoming more aggressive: like Netflix, he is intent on putting pressure on Hollywoods arcane
system of theatrical windows the periods that restrict where films can be shown or released.
Netflix recently caused a minor outcry among cinema chains when it said it would release the
sequel to Crouching Tiger, Hidden Dragon on its streaming service on the day it appeared in Imax
theatres and it looks like Mr Bezos is heading for a similar showdown. It can take up to a year for
a film to appear on subscription video services after its theatrical release but Amazon wants to
drive that down to as little as four weeks.
At a minimum, Amazons new focus on video streaming and its recognition at the Golden Globes
will speed the transition from traditional television viewing and a film experience controlled by
cinema chains to a model where the consumer has more power and choice, says Walter Piecyk, an
analyst with BTIG Research. Amazon is being taken more seriously [in online video] now and
that will help adoption of streaming. Theres a big opportunity for them to change how content is
distributed.
The traditional Amazon business model is taking an existing legacy business and grinding
distribution models and disrupting them, he adds. For Mr Bezos, the great disrupter of book
publishing, reading and retail goods, forays into film production and newspapers could be just

steps on the path to shaking up other industries.

Timeline
July 1994 Amazon is founded in Seattle. It reincorporates in Delaware in 1996; launches IPO in
May 1997
2007 Launches the Kindle ebook reader; Prime service extended to Germany, Japan and the UK
Jan 2011 Buys Lovefilm and rebrands its video on demand service as Amazon Instant Video
Dec 2011 Signs deals with Warner Brothers and 20th Century Fox to bring additional content to
Prime
Aug 2013 Jeff Bezos buys the Washington Post for $250m
Apr 2014 Launches set-top streaming device and signs deal to add HBO shows
Oct-Nov 2014 Brussels probes unorthodox tax deal with Luxembourg; dispute with Hachette
over ebook pricing ends
Jan 2015 Amazon Studios wins two Golden Globes for Transparent, reveals plans for big screen
content