David Farnor | On 31, Jan 2015

Amazon spent more than $1 billion on VOD content last year, the company has announced.

The retailer released its latest financial report this week, revealing that they invested $1.3 billion in its Prime Instant Video subscription service during 2014. It’s the latest item on a rising bill for Jeff Bezos’ online shop, which is increasingly stumping up cash for new initiatives, from music and tablets to its Netflix rival.

In Q3 2014, it emerged that the Fire Phone had cost Amazon $170 million, while the company lost $438 million across the three months to September 2014.

Bezos has never been one to shy away from flinging money at ideas or problems, although Amazon also raised its Prime membership price in the US last year to help balance the books. But now, it appears that the spending is starting to pay off: Amazon Prime membership grew by 50 per cent in the US, even with the 25 per cent price hike, while worldwide it grew 53 per cent. Video has played a part in that.

“What we see is customers who come in through our Prime pipeline for video for a free trial, and those customers are converting at a faster rate,” Chief Financial Officer Tom Szkutak told Bloomberg.

It’s been an impressive past 12 months for the streaming service, launching its first truly great original TV show – Transparent – and becoming the first online programme to win a Best TV Series Golden Globe in the process.

Crucially, though, it also saw its books enter the black at the end of last year, beating Wall Street expectations with a Q4 net income of 45 cents per share and revenue up 15 per cent to $29.93 billion. The latter may be down from an estimated $29.8 billion, but its stock still surged 14 per cent after its announcement, with the final three months marking a reversal after two consecutive periods of losses.

So, how does Amazon’s shopping list compare with Netflix’s?

Amazon spent $1.3 billion between January and December 2014, not only producing Transparent, but also securing deals with HBO, Studiocanal and others. (Amazon Prime now offers Mad Men in the UK.)

Netfix, on the other hand, spent $3.8 billion in 2014. It’s no surprise that the company dedicated solely to video is more willing to get out its wallet, but Netflix shows no sign of stopping: last year’s spending was up from $3 billion in 2013.

As of its latest Q4 2014 report, Netflix now has 57.3 million members around the world (39.11 million on home soil and 18.28 million). Amazon does not release those figures, although a report by Morgan Stanley estimates their total Prime membership to be at a lower 50 million worldwide, with around 37 million in America. Of course, one piece of research found that one in three Prime subscribers do not use Amazon’s video service at all, but for Amazon, it’s a question of building its membership base with any add-ons they can, whether that’s the free next-day delivery or the unlimited streaming of Community and The Walking Dead.

A recent study by RBC Capital Markets forecast that the race to secure the best content from rights holders is only set to heat up. Indeed, the big SVOD companies are predicted to spend a combined $6.8 billion on licences in 2015, up from $5.2 billion.

Roughly 10 per cent of Netflix’s budget is expected to go on original content, giving the VOD service a total bill of $0.3 billion to continue producing House of Cards, Orange Is the New Black and others.

Amazon’s bill on original programming is unknown, although is presumably much lower. With awards under its belt, though, its return on that investment is not far behind Netflix’s (House of Cards also picked a Golden Globe for Kevin Spacey’s performance). Its upcoming slate, meanwhile, is ambitious, with its 2015 batch of pilots including an adaptation of Philip K. Dick’s The Man in the High Castle and a deal signed with Woody Allen to produce his first ever TV series.

Whatever the eventual cost, though, Amazon’s figures reveal one key thing: it can afford to keep spending.

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