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Article posted: 10/26/2013 7:50 AM

Amazon bets on 'Betas' to turn web viewers into shoppers

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By Bloomberg

SAN FRANCISCO -- Amazon.com's new comedy show "Betas" depicts a motley band of twenty-something Silicon Valley entrepreneurs coding around the clock to develop a social-media site to rival Facebook.

Jeff Bezos, Amazon's chief executive officer, is using "Betas" to do some disrupting of his own.

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Amazon, which is spending $10 million to $50 million on "Betas" and other shows like it, joins Netflix and Hulu in delivering original programming directly to viewers that serve as an alternative to cable and network television. The growing list of Web series is helping to fragment an already-splintering audience for pay-television providers such as Comcast and DirecTV.

"People are expanding their zones of where they're going to get content," said Alan Freedland, executive producer of "Betas," which stars Ed Begley Jr. "People are seeing what Amazon is doing and making Amazon a stop along the way."

As original Web shows compete for viewers' attention, the time that people spend on traditional TV is declining. As of the second quarter, TV watching by 18-to-24-year-olds had shrunk for six consecutive quarters to 21 hours and 32 a minutes a week, down from 24 hours and 17 minutes a week in 2011, according to Nielsen Co.

In contrast, Netflix subscribers in April used the service 87 minutes a day on average, or 10 hours 15 minutes a week. That's up from 79 minutes a day, or 9 hours 21 minutes a week, in June 2012, estimates Rich Greenfield, an analyst at BTIG LLC in New York.

The shift to the Web by younger viewers spells trouble for pay-TV providers, which are trying to get a piece of the pie. Comcast has created a Netflix-like service called Streampix for its subscribers. DirecTV has said it is deliberating over starting a subscription video-on-demand service for its customers. Some U.S. cable operators such as Suddenlink Communications are also in talks with Netflix to add its service to their set-top boxes.

Original Web series are a strategic weapon for Internet companies to lure viewers, since people won't be able to see the content elsewhere except for on those sites. Netflix has debuted seven such shows, including the Emmy-winning "House of Cards" and "Orange is the New Black."

Jonathan Friedland, a spokesman for Los Gatos, Calif.-based Netflix, declined to comment.

Amazon is getting in on the trend from the ground up. While Netflix outsources production of shows to Hollywood studios like Lions Gate Entertainment Corp., Amazon has set up its own unit called Amazon Studios to make the content itself. And it's developing Web series at a rapid clip, with another in the works called "Alpha House" that will star John Goodman and Bill Murray.

Amazon has sunk as much as $50 million into creating its own content, according to Mark Mahaney, an analyst at RBC Capital Markets in San Francisco. Amazon said it has five original series in production, including two comedies and three kids' shows.

The Seattle-based company introduced Amazon Studios in November 2010, beckoning filmmakers and screenwriters with a carrot of $2.7 million to turn the top submitters' scripts into movies. While the operation began by soliciting movies, the content now in production is primarily TV-like series.

To create a show, Amazon requests scripts from anyone who wants to submit them, piloting a select few, and then lets users vote on which should be made. Amazon leaves the show up on its site for about a month, collecting comments and data such as how long people watched a pilot before turning away -- information the cable-television industry doesn't have means to gather about its own productions. Amazon didn't make "Betas" into a series, for example, until after customers voted online on the pilot.

"The beauty of the crowdsourcing for Amazon is they're able to get a lot of input about not just the reviews that people provide about episodes, but how much they're watching and possibly what else they've also watched," Edward Williams, a New York-based analyst for BMO Capital Markets, said in an interview. "They've got, in theory, more data supporting the decisions to go after certain shows."

Amazon spares little expense in creating the shows. For "Betas," cast members traveled to San Francisco and other places to find a room or bar that might fit into the plot. When they returned to their Hollywood set, they found clones of the chosen locales had already been recreated.

"It's the best job I've had," said Jon Daly, one of the actors on the show. "Everything is top of the line."

Amazon hasn't said whether it profits from its original Web shows. The first few episodes of series like "Betas" and "Alpha House" will probably be free, Freedland said.

Yet the company can parlay the content into revenue in other ways -- namely, to boost its Amazon Prime fast-shipping program. Prime customers pay $79 a year for quick shipping and get access to Prime Instant Video, where they can view Amazon Studios original content. If the online retailer gets customers spending more time watching video on the site, that's more time to wander over to a product page and shop for other items.

Amazon also plans to publish one show a week to keep consumers coming back regularly, said Freedland. In contrast, Netflix posts an entire season of its original shows online at once.

"We think adding original shows to that lineup is going to make Prime even more enticing for customers," Roy Price, director of Amazon Studios, said in March.

Even with all the activity, the appeal of original Web shows remains unproven and viewership is so far a fraction of that for traditional TV. At Amazon, the company has done a lackluster job promoting Prime Instant Video to members that primarily join for fast shipping, Mahaney said. Amazon hasn't said how many Prime members it has or what percentage of them take advantage of its video service.

Over time, Amazon and Netflix are set to become entertainment providers akin to AMC or HBO, said Freedland. Amazon's budget for "Betas" is similar to a high-end cable TV show, he said. While he wouldn't disclose what Amazon is spending, he said a cable show can cost $1 million to $2 million per 30-minute episode.

Some consumers said they are hooked on Amazon's mixture of video and online retail. Tony Riggins, a 34-year-old San Francisco resident and father of one, said Prime Instant Video is a "daily occurrence" that he uses over Netflix because the interface and show selection are better for kids.

"Our child just turned two, and he just learned how to use it on the iPad," said Riggins. More time with Amazon's services also means his family buys more physical products, especially diapers and other baby products, he said.

During a recent rehearsal on the "Betas" set in Culver City, Calif., four actors sat at a bar booth arguing in a scene about startup funding. Afterward, Begley Jr., who plays a wealthy investor, said Amazon isn't afraid of "out there" content.

With networks, "they wind up taking away everything they originally loved about the pilot script. They get scared," Begley Jr. said. "Amazon is very bold and trusting. They don't get in the way."

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