Amazon Prime Puts Viewers In Charge

By Will Ashworth | December 24, 2012 AAA

The move to original content continues for video streaming services as Amazon's (Nasdaq:AMZN) Prime Instant Video announced December 20 that it's producing pilots for six comedies. Prime viewers will then be asked which of the six they like the best; those will be green lighted for the production of full seasons. Conceptually, it seems like a great idea. Unfortunately, you know what happens to the best laid plans of mice and men. This could be a colossal flop or the beginning of a trend in television viewing. Good idea? Bad idea? I'll toss it around.

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Pros
Every September it seems the new shows debuting on the networks go away faster than they came. The combined success rate of new shows (picked up for a second season) in 2011 for ABC, CBS, CW, Fox and NBC was a dismal 42%. The best of the bunch - NBC - could deliver no better than a 50% success rate. That's worse than the success rate of top money managers and they arguably have a far more difficult task. No, it's clear that television audiences are a fickle bunch getting more so every year. Therefore, Amazon's new approach to television production provides it with the ultimate focus group ideally avoiding the pratfalls that come with an inexact science. Not only do the Amazon Prime subscribers get a chance to determine what they ultimately view, but they also get the VIP treatment, as if they're network programming executives. That's probably an even bigger attraction than getting to pick what you watch. Who doesn't like feeling special? This has home run written all over it.

SEE: Netflix Has A Bumpy, Crowded Road Ahead.

Cons
It's that fickleness thing I mentioned previously. You pull together six teams of writers, directors, actors, camera people and all the other professionals required to film a pilot; then you send all of them on their way while you survey your audience. Once the verdicts are in, you then have to bring the teams back to get the show(s) made. With a traditional show, writers pitch the networks in early summer; first drafts are completed in the fall with revisions by Christmas. If all goes well, the network gives the thumbs up in January, a pilot is made by May and given the green light for more episodes in time for a fall premiere. The Amazon process and timeline won't be marginally different from the traditional development with the exception of the time necessary to canvas Prime's viewership. Unlike focus groups carried out in the traditional process, viewers will expect their opinions to be listened to. What happens if the viewers want something that is awful in the eyes of TV executives? Do they have to follow through with production? These are some of the questions investors must consider when pondering Amazon stock as a result of this innovative, yet risk-filled approach to show development.

We know what Amazon's doing, but what about the rest of the video streamers.

Netflix (Nasdaq:NFLX) delivered its first exclusive series in January 2012 called "Lillyhammer," a show that I enjoyed because of my Scandinavian heritage, but which got mixed reviews. Apparently, a second season is set to run in the New Year. It's also resurrecting "Arrested Development" as well as producing "House of Cards," an original series starring the talented Kevin Spacey. Netflix paid $100 million for two seasons (26 episodes) of the show without seeing a pilot. What's most interesting about the show is they're releasing the entire first season on February 1. Netflix subscribers can watch at their own pace, instead of once a week like TV. That's the way TV should be. Hulu, which mixes paid subscriptions with advertising, invested $500 million in original content and fees for ongoing programming in 2012; it had a great year financially with revenues of $695 million and a 50% increase in subscribers to three million. In terms of original and exclusive content, it launched a total of 25 series. It's not quite Netflix but it's doing well with its own version of video streaming. As for the Verizon (NYSE:VZ) - Coinstar (Nasdaq:CSTR) partnership, it's yet to launch and when it does in the first quarter of 2013, it will be devoid of original content choosing to focus on a smaller selection of movies subscribers will want to watch. It's pushing quality over quantity. I'm not sure that makes sense but we'll know soon enough.

SEE: What's Next For Netflix?

The Bottom Line
I see Netflix's model as the one to beat. Its Disney (NYSE:DIS) deal announced in early December gives it some of the most popular content coming out of any studio while building original content that viewers will want to watch. Its combination of new and old programming means subscribers get a little bit of everything, and it keeps the price reasonable while not becoming stale. Amazon's move to allow viewers to choose appears to be nothing but a gimmick. Some people might like it but the majority will only care if the shows are worth watching. It's not a game changer by any means.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

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