At his Streaming Media blog, Frost & Sullivan analyst Dan Rayburn adds a new wrinkle to the ongoing debate over why Amazon kicked Apple TV and Chromecast products out of its online store. According to Rayburn’s sources, Amazon has been chatting up content owners about offering a live, over-the-top video service of some kind.
Rayburn speculates that such a plan could help explain why Amazon recently acquired the cloud-based live streaming platform provider Elemental Technologies at an unusually high valuation:
Insiders say Elemental is on a run rate to do close to $100M in 2016. So if the rumors of Amazon valuing Elemental at $500M are correct, Elemental is getting about 5x projected 2016 revenue, a rather high valuation, unless Amazon is also placing value on them for other reasons, like the ability to power their own live OTT service.
I’ll add another data point in support of the notion: Twitch, which Amazon acquired last year for close to $1 billion. As noted in a post here last week, Twitch is rolling out a new set of tools to help its broadcasters linear-ize their channels, by mixing live and on-demand content and creating playlists that turn the channel into a 24/7 experience.
Clearly, Amazon sees opportunity in providing live, linear and over-the-top video services.
Here’s another data point: Amazon has expressed concern to the FCC that its over-the-top video plans, and in particular its evolving channel strategy for Twitch, could end up getting it regulated as a multichannel video programming distributor under new rules being considered by the commission.
Here’s what Amazon told the commission on the subject last month, according to an ex parte filing:
The parties also discussed the Commission’s pending proceeding to alter the definition of “multichannel video programming distributor” (“MVPD”). We explained that competition and innovation in all sectors of the video content and distribution industry, including “over the top” (“OTT”) services, today is vibrant and growing, with many companies offering content through multiple devices and delivery technologies and investing in high quality programming, all to the benefit of consumers. We discussed how this investment in new creative and award-winning content by multiple companies, which is attracting a large and growing viewership, is occurring naturally in the marketplace, with little or no government involvement. In view of this dynamic, healthy, and rapidly changing technological and competitive environment, we questioned the need for government intervention in this market segment, expressing concern that the rules proposed by the Commission would inhibit innovation by imposing on OTT services regulatory burdens created long ago that are neither relevant to nor tailored to address this new vibrant industry…
We also cautioned the Commission to be mindful of potential unintended consequences arising from an expanded definition of MVPD. For instance, Amazon owns Twitch.tv, a live streaming video service focused on video gaming. Content on Twitch can be viewed live (i.e., on a linear basis) or on demand. We raised the question whether Twitch could be considered a “channel” under the Commission’s proposed rule, thereby making it an MVPD subject to regulation. If so, we noted how such unintended consequences could be highly damaging, inadvertently causing the government to significantly distort a new and alternative video segment that is growing and flourishing without any government intervention.
“New and alternative video segment” you say?
As I speculated at the time, Amazon’s acquisition of Twitch seemed to be less about video gaming per se than about building the next-generation TV platform. And nothing Amazon has done with Twitch since then suggests anything else.
According to a study out this week from Forrester Research, cord-nevers — those who have never subscribed to a traditional pay-TV service — make up 18 percent of the U.S. population today, a larger share than have cut the cord. Forrester projects that by 2025, half of all Americans under 32 will not pay for TV under the current model.
That doesn’t mean they won’t be consuming a lot of TV content, however. “While older cord-nevers understood that they would have to live without access to some of the best programming by forgoing pay-TV service, younger digital cord-nevers have grown up believing that they can have all of the TV they want without paying a traditional TV distributor for it,” Forrester analyst James McQuivey wrote in the report.
As it happens, the overlap between those under-32’s that won’t be paying for traditional TV service and Twitch’s core demographic is likely to be quite high. If TV programmers want to reach those folks without pay-TV cords, Twitch is where they’ll be.
Programmers won’t be reaching them on Twitch on the same terms as through Comcast or DirecTV, however. For starters, the user-generated style of broadcasting on Twitch is a very different animal than traditional TV broadcasting — more interactive, more engaging, more social. More to the point, the audience is already there, amusing itself with games.
Unlike traditional pay-TV distributors, who must depend on programmers to create value for their service, Amazon will bring a large and growing worldwide user-base to the table with it in any discussions it may eventually have with TV programmers about reaching the Twitch audience. That’s likely to make for a very different sort of negotiation than TV programmers and broadcasters typically have with traditional pay-TV providers — more like the sort of negotiations Amazon has today with book publishers.
All of which adds some more color to Amazon’s banishing of Apple TV and Chromecast. As discussed in a previous post here, Apple is trying to position Apple TV to develop into a vital platform for programmers and content owners — one in which they need position within the Apple TV UI as much as Apple needs them. Even more than market-share considerations for their respective set-top boxes, Apple’s aspirations Apple TV represent fundamental strategic competition for Amazon’s ambitions. Insofar as Apple needs to build up the install base of the new universal-search powered Apple TV UI to have value to programmers, Amazon has no reason to help it.
As for Google, it came within a whisker of buying Twitch itself before Amazon swooped in a snatched it away. So Amazon is well aware of Google’s interest in live, over-the-top video services. Google has now launched a direct challenge to Twitch in YouTube Gaming, which, like Amazon’s acquisition of Twitch is less about gaming than about building a broadcast audience online. While Amazon can’t banish YouTube it has no reason to help Google bolster its position in the living room by helping it sell Chromecast dongles.
As other commentators have noted, Amazon is flirting with legal danger by using its dominant position in consumer electronics retailing to gain leverage in an upstream market. But that may also be a measure of how high it sees the live, linear and over-the-top stakes to be.