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Amazon Prime’s BYO Bundles Scoring Big For Small Channels

One of pay TV’s biggest developments the past couple of years has been the rise of the skinny bundle of digitally delivered online video channels. But those digital bundles have struggled to make money, or even draw anything like the scale of subscribers still paying fat monthly fees to traditional MVPDs. All the bundles except for one non-bundle, that is.

That non-bundle is Amazon Prime Channels, which provides Prime subscribers with easy access and sign-up to about 156 premium channels, from HBO, Showtime and Starz to specialty offerings such as the Spanish-language Pongalo, faith-based Dove Channel, horror-focused Shudder, sports-oriented SI TV, and business-focused Cheddar (Not on the list: Netflix). Sign up for Amazon Prime, and you not only get all of Prime Video for free, but can easily subscribe to those other networks as well, though for additional fees.

Amazon Prime Video ott video logosAnd it appears that many people are indeed paying up. A new study from BMO Capital Markets says Prime Video Channels will generate $1.7 billion in revenue this year, up 143 percent from 2017’s $700 million. And BMO projects that worldwide revenue will hit $3.6 billion by 2020.

Amazon keeps an average of about 30 percent of the revenue (total revenue split varies depending on the channel). That means about $1.2 billion went to participating channels, a not-inconsequential amount in the Peak TV era, especially for specialty channels scrapping to maximize income as they build scale and sustainable business models.

“We believe [Prime Video Channels] is a material driver of standalone [over-the-top] subscribers for many entertainment companies,”  BMO analysts Daniel Salmon and William Lowden wrote in the report. That translates to anywhere from 25 percent to 45 percent of total OTT users, depending on the channel.

The sheer scale of the revenue suggests that at least some Prime Video users are going BYO, building their own bundles with precisely customized packages of programming they’re most interested in.

The ease of sampling, signup and billing clearly make for an attractive option to consumers compared to finding and signing up for one of the half-dozen or so virtual MPVDs out there. And even with fairly stiff terms from Amazon, Prime Channels is typically a better deal than what the channels get from many of the vMVPDs or even traditional pay-TV packages.

Prime Channels puts networks in front of a major portion of Amazon Prime’s 100 million subscribers. Estimates of the number of Amazon Prime users who tune into its video offerings range between 50 million and BMO’s 75 million (a large percentage of Amazon Prime subscribers still don’t use, or even know about, its free video offerings). Regardless of the specific number, it’s a big market of ardent video watchers.

Prime Video itself continues to expand, most notably this week with its rollout on Comcast’s Xfinity platform. That puts Amazon Prime next to Netflix and Hulu, as well as many of the networks on Prime Video Channels, on Comcast’s prized set-top box/platform, which reaches about 22 million U.S. subscribers.

The downside for channels is that 30-percent “tax” that Amazon exacts, and the loss of a direct relationship with their audiences. For a service able to take advantage of it for marketing and other opportunities, losing that direct audience relationship is a big deal.

Channel providers will have to weigh those downsides versus the cost of creating subscriber awareness and acquisition through their direct-to-consumer initiatives. I’m betting for many, riding Amazon’s giant river of subscribers is still an attractive route (if not the only one) to sustainable success.

It’s important to put all of this in perspective. The lion’s share of Prime Channels revenue undoubtedly goes to the biggest players, such as HBO and Showtime that already are well known and spend hundreds of millions of dollars on marketing. The  specialty channels at the other end of the long tail are indubitably getting worse terms, and a much smaller share of revenues. But a boost of as much as 45 percent to your subscriber count can’t be ignored, no matter what size your channel.

As well, the biggest competitors for the speciality channels include Amazon itself, which is spending $5 billion this year on original programming.  But if you’re among the several dozen members of the Prime Channels club, the possibilities are notable (how your network gets in the club is another question altogether). Can the BYO Bundle be the newest, and most lucrative, alternative in the skinny bundle universe? Stay tuned.