Market Insight

Amazon strikes major operator partnership deal

May 17, 2018

Max Signorelli Max Signorelli Research Analyst – Home Entertainment, IHS Markit

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The Amazon Prime Video app is to be made available via UK telco BT’s TV set-top boxes in June 2018, a major partnership deal for the global e-commerce and online video giant in one of its most developed markets. The deal sees Amazon follow in the footsteps of its primary online video rival Netflix by gaining carriage on pay TV set-top boxes, and comes after the April announcement of a deal with Israeli mobile provider Partner Communications to bring Prime Video to the operator's Android TV-based virtual pay TV offering. The BT deal was announced as the UK telco unveiled a new converged product and content aggregation strategy.

Amazon and Netflix will also be joined by Now TV, Sky UK’s virtual pay TV service, on BT TV’s set-top boxes in 2019. Additionally, the new BT TV app will offer download functionality for offline viewing for the first time and will be available through new digital platforms including Samsung smart TVs, Apple TV and Google’s Chromecast.

Our analysis

Amazon’s foray into the pay TV set-top-box ecosystem has been long in the making. Alex Green, managing director for Amazon Video announced that Amazon was open to operator partnerships more than a year ago, at Cable Congress 2017, and likened Amazon Video to Netflix as a complimentary service as opposed to a direct threat to the pay TV model.

However, unlike Netflix, Amazon Video’s offer in developed markets provide many more avenues for content consumption, such as the transactional Amazon Video store, live sports and Amazon Channels augmentation. Such features encroach much further on to pay TV’s turf and operators have clearly been hesitant to invite Amazon on to their platforms to date.

In the UK, a deal like this further demonstrates the value of online video to the Amazon ecosystem, with Prime Video being one of the key features for customers of the Amazon Prime subscription bundle outside of the priority delivery benefits. In terms of improving customer satisfaction for BT pay TV subscribers, the benefits of Amazon’s presence on the set-top-box strikes are twofold; BT subscribers with Prime Video enjoy a more streamlined user experience and those without Amazon gain an opportunity to enjoy Amazon content on a large screen without additional device investment. The UK is also one of only two countries to offer Prime Video on a standalone basis alongside the full Amazon Prime packages – Prime Video is available as a standalone service globally, but in all the other countries in which the full Amazon Prime offer is available, a standalone Prime Video option is not. Which of the three subscriptions will be offered through BT is still unclear, but such a standalone offering lends itself well to distribution via a set-top-box where customers can enter the Amazon ecosystem in a complementary manner like Netflix.

A key part of the growth strategy of Netflix, Amazon’s main video rival locally in the UK and indeed globally, has been operator partnerships, particularly in mature markets such as Western Europe and the US – the OTT subscription provider has deals in place with more than 40 different operator groups globally. In the UK, such deals have been struck with Virgin Media, Sky and indeed BT, with operators embracing the complimentary nature of the channel-like service that has millions of UK customers.

Amazon Prime Video, meanwhile, has also enjoyed significant growth in the UK – IHS Markit estimates 35% growth in subscribers and users in 2017, spurred by successful device launches, a widespread advertising campaign, and better support for adjacent services like Amazon Music Unlimited and Twitch. We expect this growth to continue – but, according to IHS Markit research, Amazon Prime Video’s subscriber base still trails behind Netflix’s, though the former will grow at a faster rate over the next few years.

Amazon’s new venture into operator partnerships may be part of a larger collaborative expansion strategy across major markets globally, following in Netflix’s footsteps. While for BT getting all the major UK OTT subscription video providers on board is a key aspect of the telco’s content aggregation strategy, other operators around the world may not consider this a priority – many are likely to be more selective with their choice of OTT partners and more reluctant to share the video space with Amazon. Its clear ambitions as a virtual pay TV provider certainly make it a content partner to be warier of than Netflix, which has shown no signs of deviating from its purely channel-based model.

Geography
UK Western Europe
Organization
Amazon BT BT Group
Research by Market
Media & Advertising
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