Amazon to maintain high investment in Originals

Amazon auto show, The Grand Tour

Amazon’s increased spend on original content will “continue in 2017 and likely beyond”, as it continues to build engagement through its video strategy.

Speaking on the company’s fourth quarter earnings call, chief financial officer Brian Olsavsky said that last year Amazon Prime customers more than doubled their amount of hours they spent consuming video, music, and reading compared to 2015.

However, he also warned that increased spend on Amazon Originals would partly eat into the company’s bottom line, as Amazon forecast a significant year-on-year drop in operating income for the current quarter.

“One of the main things we look out on Prime Video is customer usage patterns and in 2016 we had a doubling of Prime hours for video, music and reading. So we’re happy with the engagement that customers have,” said Olsavsky.

“Original content is a fixed cost expense. The more we can amortise it over a large base, the better off we’ll be,” he said in reference to the rollout of Amazon’s Prime Video offer to some 200 countries globally in Q4 2016.

“We’re very happy with the results in video. Yes, the investment did step up in the second half of last year, including marketing and that will continue in 2017 and likely beyond.”

In a strong fourth quarter for the company, Amazon reported a 22% increase in net sales at US$43.7 billion and a 13% rise in operating income to US$1.3 billion.

However, Amazon said that for Q1 2017 it expects operating income to be between US$250 million and US$900 million – compared with US$1.1 billion in Q1 2016.

Olsavsky attributed this to the continued increase in Amazon Originals spend, as well as an increase in costs relating to new fulfilment warehouses. Last year Amazon added 26 new warehouses – 23 of these in the second half of the year.

“Digital content, digital video content and marketing stepped up quite a bit in the second half of the year. We continue to invest heavily in those two areas,” said Olsavsky.

“We also have investments in other Prime benefits from Prime Now to AmazonFresh and of course we are continuing to invest in Alexa and our Echo devices. Finally, I’d point out India which continues to be a rather large investment for us.”