In its latest report, Ampere Analysis suggests that Amazon can extensively subsidise content acquisition using the increased retail activity of Amazon Prime users, by as much as $130 per new or retained Prime customer per year.
Prime, launched in 2005, when Amazon was turning over a mere $8.5bn each year, is now a core part of the success of Amazon’s retail business. The average Prime customer spends roughly twice as much on purchasing products from Amazon as a customer without Prime.
By Ampere’s estimates, there are now 60m-70m Prime subscribers worldwide, with these subscribers collectively responsible for over a third of inbound spend on Amazon’s retail business. Ampere estimates that Prime subscribers spent as much as $39bn (after sales tax) with Amazon in 2015 – an average of nearly $600 per customer each year.
This additional value allows Amazon to bring significant weight to bear in acquiring content to encourage consumers to sign up for Prime. Ampere calculates that each additional customer upgrading to Prime allows Amazon to spend roughly $130 extra on acquiring content.
As a result, spending $1bn in a year on acquiring content would have a neutral impact on Amazon’s retail operating income providing the company could upgrade an additional 7m-8m customers to Prime. Similarly, the ~$2bn that Ampere estimates Amazon spent on acquiring video content in 2015 would have only required 15m Prime upgrades/retentions to justify.
