Amazon nears debut of original TV shows

Thursday - 4/18/2013, 9:32am EDT

RYAN NAKASHIMA
AP Business Writer

SANTA MONICA, Calif. (AP) -- There used to be just one way for getting shows on TV. Networks would spend tens of millions of dollars ordering scripts and shooting pilots and then show the fruits of their labor to focus groups. A small group of executives would cherry-pick a few promising shows to put on TV, hoping they'd be a hit with bigger audiences.

The process was unscientific, expensive, and often didn't work. It's still how most of the industry operates today.

Online retailing giant Amazon.com Inc. aims to put a twist on the business with its own foray into original TV show production. Starting soon, it will debut 14 of its own TV show pilots on its website, allowing anyone from the U.S., U.K. and Germany watch them for free. The company will ask for viewer input, and hopes the comments and critiques will help decide which shows live or die.

"Why follow the guru method when you don't have to anymore?" says Roy Price, director of Amazon Studios. "The audience is out there and the audience is interested. We might as well make them a partner in the process."

The completed series will be available for no extra charge to subscribers of Amazon Prime, its $79-a-year rewards program. Prime, which launched in 2005 as a way to entice U.S. customers with free two-day shipping, has since expanded internationally and allows members to borrow e-books as well as watch movies and TV shows on computers, mobile devices and Internet-connected TVs.

By getting into original TV shows, Amazon is riding a wave of Internet-fueled people power that is transforming the entertainment industry. Online buzz can make or break movies these days. And crowd-funding sites like Kickstarter help generate fans and startup capital before would-be producers start filming.

Debuting shows online also helps avoid problems caused with the age-old TV model, where everything from a weak lead-in show to the Major League Baseball playoffs can draw viewers away unexpectedly.

"We're not just playing that time-slot game," says Alan Cohen, a producer of the Amazon comedy pilot, "Betas."

"Here, you have the opportunity to put it out, and it doesn't matter exactly what time it airs. People can find the show and it'll be out there."

As it makes big bets on online video, Amazon is competing with companies such as Netflix Inc. and Hulu. Netflix debuted its original series "House of Cards" in February to critical acclaim. Netflix hopes that the monthly fees it takes in from its growing subscriber base more than cover its increased spending on TV shows and movies. Its coming quarterly earnings results, due Monday, will be the first indication of whether "House of Cards" -- which had a reported budget of around $5 million per episode -- helped attract more subscribers.

Amazon has more to gain by growing Prime members than just paying for TV shows. Once people join Prime, they tend to buy 6-8 times more items from Amazon than non-members, in part to take advantage of the free shipping, says Daniel Kurnos, an analyst with the investment bank, Benchmark Co. They also buy digital books and movies on the store that aren't included as freebies.

Amazon doesn't divulge how many Prime members it has, other than to say there are "millions." Kurnos estimates there are between 6 million and 10 million.

"Amazon has always been trying to drive more customers to Prime. Not because Prime itself is profitable, but because it gives you golden handcuffs," Kurnos says.

The company gets a second benefit from Prime because third-party sellers like camera dealers pay fees to be included in the Prime free shipping program, which requires that they send their goods to Amazon warehouses for handling. That keeps the company's facilities humming at fuller capacity, making its deliveries more efficient.

In a sign that the focus on Prime is working, shipping revenue -- where Prime membership fees are recorded -- has been growing, up 57 percent in the quarter through December to $832 million compared with a year ago. That has pushed net shipping costs as a percentage of total revenue down, from 5.4 percent to 4.5 percent, helping boost profitability. Revenue grew 22 percent to $21.3 billion in the most recent quarter, a number that underscores the outsized benefits of a seemingly small improvement.

Amazon has been investing heavily to convince more people to sign up for Prime, and recently paid for the exclusive online rights to a number of shows including the second season of "Downton Abbey" and the CBS show "Under the Dome," which will debut this summer.