Apple, Amazon, and the exclusivity paradox

Rob Gallagher/Ovum
04 Sep 2015
00:00

OvumIf content is king, then exclusive TV is the king of content. That’s what a media report that Apple has held discussions with Hollywood executives about producing original video would seem to confirm. It’s a tried-and-tested way to attract customers in the TV world, but Apple, Amazon, and other companies investing in exclusivity should know that it can destroy the value of content too.

One high-level executive cited by Variety states that Apple’s goal is to create development and production divisions that would start producing TV series or movies or both by next year in a bid to compete with Netflix. Other sources described the company’s exploration as more of a flirtation, but one noted that Apple is said to have made an “unprecedented bid” to secure the stars of Top Gear when they left their BBC series earlier this year.

Amazon won the contest for Jeremy Clarkson, Richard Hammond, and James May, with a deal reportedly worth $160 million. The trio will make three seasons of a new car show that will be made available exclusively to subscribers to Amazon Prime Instant Video, starting in 2016. Like Apple presumably, the online retailer believes that such content will help attract customers to its nascent service in the face of stiff competition from Netflix and traditional TV.

Will it prove a good buy? Original content has certainly played a major role in Netflix’s success. Shows such as House of Cards and Orange is the New Black have clearly set its offering apart as traditional TV operators have fought harder for exclusive TV and movie rights and upgraded their services to support the same multiscreen features that Netflix pioneered. Amazon will have an added advantage in that the former Top Gear trio’s names and what they do are very well known.

Can Amazon translate traditional TV into digital disruption?

The challenge for Amazon is that Top Gear’s popularity was built on a very different business model to the one the online retailer will employ.

The BBC has grown the Top Gear brand by maximizing its reach, licensing the program mostly to free-to-air and basic pay-TV channels, and extending its content to DVDs, books, and live events. As a result, Top Gear has built an audience of 350 million in 214 territories, earning the broadcaster’s commercial arm, BBC Worldwide, between £50 million and £150 million in revenues, according to various media estimates.

Amazon’s strategy will be largely about limiting its new car show to those prepared to subscribe to Prime. The problem is that only a fraction of Top Gear’s viewers are likely to follow its trio of former presenters to the online retailer’s service.

There’s a precedent in the story of UK chat-show hosts Richard and Judy, who went from having millions of viewers on free-to-air TV in 2009 to just tens of thousands on a new digital channel.

“We thought, probably naively, that maybe we could be the first mainstream network act to go to a digital channel and turn it into something that’s growing,” Richard later recounted. “But just before we went on air, the bean counters at UKTV changed their business plan, and it became a paid-for channel so nobody could get it. Our audience evaporated overnight.”

Of course, times have changed, with online technology making new services easier to subscribe to and access. Amazon also boasts a brand, customer base, and marketing resources that the pay-TV channels of old could only dream of. But have viewers changed that much?

As my colleague Charlotte Palfrey observes: “People are quite happy to consume content when they don’t have to do anything out of the ordinary to get it. When you suddenly ask people to pay for it then will find a way to do without.

“And I think Amazon is likely to find out that people aren’t happy to pay for the Top Gear team’s talents when they had previously been piped into their homes for free.”

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