Amazon should spend $ 7 billion on video and music content

Amazon revealed Friday that it had spent $ 1.7 billion on video and music content in the first quarter, a new figure that investors had been forced to predict.

Investments in video and music, which are part of Amazon's Premium Membership Program, increased 13 percent from $ 1.5 billion a year earlier, said Amazon in its quarterly financial report. That's about $ 7 billion for the full year.

Amazon is competing with Netflix, Hulu and a host of other streaming offerings on the video side, and in music, services provided by Apple, Spotify and others. Unlike these companies, Amazon is incorporating them into a broader annual subscription plan, leveraging its dominant position in e-commerce and consumer demand for fast shipping. Prime members usually pay $ 119 a year.

"This is an area that is generating a lot of excitement," said Dave Fildes, director of investor relations for Amazon, at Thursday's earnings conference with analysts. "Make sure we continue to invest there."

The $ 7 billion spent for this year, if successful, exceeds previous estimates by some analysts and could pose questions about the effectiveness of investments, as Amazon has told shareholders that it plans to increase its spending in other areas, such as physical investments. shops and grocery delivery. Amazon announced Thursday a new $ 800 million investment to speed up premium member shipments

BTIG analyst, Rich Greenfield, had previously stated that he expected Amazon to spend up to $ 6 billion in content this year, while Gene Munster of Loup Ventures told CNBC that his estimate was close to $ 5 billion. Munster said in an email that Amazon "spends too much" on content compared to its prediction and that it would prefer that the company invest in services more directly related to its core business of e-commerce, such as a delivery faster. But because of the growing competition in video streaming, Amazon will likely continue to increase its spending on video content, he said.

"Even though I think it's not the best use of Amazon's capital, I think they'll continue to increase their content investments in order to track Netflix, Disney and Apple," he said. Munster.

Amazon defines music and music expenses as "the licensing and production costs associated with the content offered by Amazon Prime subscriptions, as well as the costs associated with digital subscriptions and sold or rented content."

Even with rising content spending, Amazon is posting record profits. On Thursday, the company announced a net profit of $ 3.56 billion, its highest level, while its cash balance reached a record $ 47 billion.

But Amazon has announced lower-than-expected earnings guidance for the second quarter because of the cost of pursuing many initiatives.

Anthony Chukumba, an analyst at Loop Capital Markets, said that reading content from Amazon was not a problem because the company had become a "machine to make money," mainly because of the growth of Amazon Web Services. Chukumba said that free content was a "primary retention tool" for subscribers, who tend to spend more on Amazon than non-members.

Amazon said Thursday during its earnings conference that it was changing the way it accounts for video expenses due to a new accounting rule. The company will now capitalize the production costs of all original content, rather than some, so that expenses are amortized over time. In March 2019, Amazon's total capitalized video and music costs were $ 4.2 billion, with capitalized video content having a weighted average remaining life of 2.6 years.

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