Amazon.com, Inc. (NASDAQ:AMZN) has been very economical with information surrounding Amazon Prime. The only information disclosed is that the company raised $6.4 billion from its retail subscription service last year. With this information, it is now easier to estimate the amount of money that Amazon gets from Prime.
More details into Amazon’s 10-K can help estimate the amount of revenue from Prime subscriptions that is spent on shipping revenue and the amount it spends on other elements offered through Prime. Estimates on amount of money spent on management’s comments and video can give a rough estimation into the economic value of Prime Video. There is a high possibility that Prime Video is a loss leader.
Amazon recorded $6.39 billion in subscription revenue in 2016. Of this, 90% amounting to $5.75 billion was from Prime subscribers. Amazon’s net sales for the year was $94.67 billion. Retail products generated a total of 91.43 billion during the same period. It evidently stands out that Prime subscriptions contributed $3.23 billion of shipping revenue. The remaining $3.23 billion is the revenue collected from other aspects including Prime Video.
The $2.5 billion is far less than the $8.8 billion that Netflix, Inc. (NASDAQ:NFLX) generated during the same period. Despite the big margin, Amazon has managed to successfully outdo Netflix for content.
Amazon hasn’t revealed the exact figure from how much it spends on content. Analysts have however estimated the figure at $3.2 billion for 2016. This means Amazon is making a loss of at least $700 million on Prime Video. The company also incurs distribution and marketing expenses.
Putting the details together, Amazon is likely to spend more on content this year. The company doubled its spending on content and marketing last year. Despite the huge loss it is making from Prime Video, the increase in Prime subscribers subsidizes the loss. Prime has boosted Amazon’s sale of retail products which rose to $23 billion last year representing 44% from the previous year.
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Amazon launched Prime Video worldwide last year including markets without shipping benefits for the Prime. Stand-alone Prime subscribers will pay $5.99. This is a big reduction from the $99 annual fee annual fee paid by U.S Prime Subscribers.