Is Amazon Eyeing a Move Into TV?

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When Amazon.com Inc. (NASDAQ: AMZN) starts looking into entering a new business, the existing players had better pay close attention. The latest front appears to be the premium TV and movie channel business, according to a report in Monday’s New York Post.

The e-commerce giant reportedly wants to develop a paid channel to deliver its own movies and TV shows. The company’s current Amazon Prime Channels offering serves up premium digital streams of Time Warner Inc.’s (NYSE: TWX) HBO, CBS Corp.’s (NYSE: CBS) Showtime, Lions Gate Entertainment Corp.’s (NYSE: LGF) and Epix, a joint venture of Viacom Inc. (NYSE: VIAB), MGM and Lionsgate.

Amazon’s production of “Manchester by the Sea” received six Academy Award nominations this year, including one for Best Picture, and the company also produced “The Salesman,” an Iranian film nominated for an Oscar in the Best Foreign Language Film category.

Amazon Prime members ($99 annual fee) can subscribe to streaming versions of the premium channels for the same price they would pay to their cable or satellite company. HBO, for instance, costs $15 a month from a cable company and $15 a month as a streaming service from Amazon.

What’s Amazon’s game? It can’t charge less than cable and satellite companies, so what’s the point? The point, as with everything Amazon does, is to drive up Prime memberships, which leads to more sales of the millions of items available on Amazon. That part makes sense.

But adding its own premium channel, does that make sense? Well, yes, especially if the company’s studio continues to produce high-quality shows and movies.

Say Amazon could charge $5 a month for its own premium channel. In its recent Form 10-K annual report filing with the U.S. Securities and Exchange Commission, the company reported net sales of $6.4 billion for “retail subscription services” including “annual and monthly fees associated with Amazon Prime membership” as well as other of the company’s subscription services. Let’s assume 90% of those fees we generated by Prime. That’s roughly 58 million subscribers at $99 a year. If every one of those signed up for an Amazon premium movie channel at $5 a month, that would add nearly $4 billion to the company’s net sales for a year.

Even if only a quarter of Prime subscribers sign up, the company still adds $1 billion to its top line. Not a lot for company with nearly $136 billion in sales last year, but Amazon runs on thin margins, and a premium movie channel would, in fact, add something. That’s could be all it takes.

The New York Post could not get an official comment from Amazon, but the newspaper cites “one in-the-know Amazon employee” who said the company could have its own premium channel “in a few years.” Does that threaten the existing premium channels? Depending on how Amazon prices its premium channel and the quality of the programming it offers, that is a real threat. And HBO and the rest would do well to pay attention.