The Earnings Drumbeats Are Calling

It's always foolish to post a newsletter just before a big quarterly earnings statement is coming (tomorrow, if you didn't know). But there is so much going on, I wanted to try to make some sense of it all before it gets drowned out in the post-quarterly tsunami of Amazon news and speculation.

It's always foolish to post a newsletter just before a big quarterly earnings statement is coming (tomorrow, if you didn't know). But there is so much going on, I wanted to try to make some sense of it all before it gets drowned out in the post-quarterly tsunami of Amazon news and speculation.

First, as a matter of housekeeping, something I genuinely thought would probably not happen (Elon Musk buying Twitter, and therefore Revue) now looks like it probably will happen, and I frankly don't know yet what that means for this newsletter. I've already been pretty outspoken that I don't plan to leave Twitter — the place just means too much to me, and I think it is much more a function of what the community makes of it than any input from the owners or executives in charge — but building a renewed business on that foundation is a different kettle of fish. My main worry, as I mentioned before, is that the tenor of Revue itself radically changes: I've already been on one so-called "free speech" newsletter platform and it just got me associated with a bunch of people I didn't want to be standing next to in a subway car, let alone a masthead. So just like I'm firing up my old Writer's Room Slack and making sure my other social network logins still work, I am looking at newsletter alternatives and will keep you posted.

Musk paying a price a fair bit above trading is actually close to the only good news for shareholders in digital media this week. (If you're an employee in digital media, it's bad all over.) Netflix announced a downturn in subscribers and even more pessimistic guidances going forward, and is looking into hacking away costs and adding an advertising-supported tier, things that seemed wildly improbably even a year ago. A lot of companies, maybe especially Netflix, convinced themselves that the negative data they were seeing was part of the pandemic bubble of economic uncertainty, when it turned out that the pandemic-driven urge for people to entertain themselves was actually keeping them afloat. A bubble that cuts both ways!

CNN+ was likewise unceremoniously wound down, after being caught in an awful intersection of a hastily thrown-together product, customer indifference, executive turnover, and a new merger that obviated the need for a standalone CNN product in the first place. That is not a garbage fire, but a garbage inferno where nothing can survive.

But Spotify, which presumably has had none of CNN/Warner/Discovery's complications, is also tumbling because of investor skepticism of its investment-heavy, revenue-soft digital media strategy. The big names, too, are in for a rough time. Google had a bad quarter. Facebook is struggling to continue to grow its userbase. You could say it's a reckoning on digital media in general. Even Twitter's board, by accepting Musk's offer and agreeing to recommend it to shareholders, effectively announced to the world that their existing plan wasn't going to offer them anything more than Musk's last, best mild premium above the company's current trading price. The days of perpetual growth are over. Everyone is looking down the barrel of the rest of 2022 and 2023 and they do not like what they see.

Amazon, to a certain extent, is insulated from this in a way that Twitter, Netflix, and even Facebook are not. It's not nearly as wedded to a single business or revenue model. And its core businesses of retail and online infrastructure are only going to be more necessary and more lucrative in the near and long future, pandemic uncertainty or not. Even Amazon Prime, its main streaming video service, is tied to retail sales and other Amazon services in a way that makes it easier to attract new signups and harder to lose existing subscribers than, say, Netflix.

However, everything Amazon is doing suggests that its pure digital media businesses are facing the same problems as everybody else.

  • It rebranded imdbTV to Freevee. You don't emphasize the "Free" unless you have solid data that paying anything at all for digital TV is too much for a substantial portion of your potential customers. The big marketing push for Freevee hasn't really hit yet, but when it comes, we'll get a better sense of how Amazon thinks about its reconceived ad-supported tier in relationship to the rest of its offerings.
  • The news has leaked that Amazon wants to change how it pays out revenue to Twitch streamers, keeping more of the money taken in for itself. Assuming Amazon follows through, this is a big bet that few users will jump ship to another platform. It's also a sign that despite video streaming still being in early days, Amazon leadership wants all its divisions to pay for themselves, and (ideally) then some.
  • Amazon continues to pitch Rings of Power, its expensive-as-hell five-years-in-the-making Tolkien series, which will either be the hit it badly needs to justify its entire programming strategy or the albatross around its neck whose failure (if it fails either critically or commercially or both) might ultimately mark an age in preposterously over the top globally marketed digital video that has finally come to an end.

Outside of digital media, Amazon is launching something it probably could have done at any time, a Shopify-like program called Buy With Prime (which Michael Cader at Publisher's Lunch cheekily calls AaaS — Amazon as a Service). Ben Thompson goes further (although less cheekily) in his newsletter. Here's how it will work according to Denny Jacob at the Wall Street Journal:

The company said the Buy with Prime offer will be rolled out by invitation only through 2022 for those who already sell on Amazon and use the company’s fulfillment services. Later, Amazon plans to extend Buy with Prime to other merchants, including those that don’t sell on its platform. Participating merchants will use the Prime logo and display expected delivery dates on eligible products. Checkout will go through Amazon Pay and the company’s fulfillment network. Amazon will also manage free returns for eligible orders.

As I see it, it's a two-fold play: on one hand, bring revenue in from other retailers using Amazon's robust shipping infrastructure; on the other, expand the value of the Prime brand and Prime membership by allowing Amazon subscribers to get the same free, fast shipping from even more retailers.

All this would further bolster the Prime program and allow it to sink more cash into high-prestige culture projects like Rings of Power, without having to worry about the same kinds of tumultuous turns of fortune that are battering Netflix, right?

Okay, here's the problem: Prime has gotten so big and bloated that it risks becoming confusing to customers who might want something relatively straightforward like (ugh) watching shows on Freevee and shopping at Walmart or Tesco instead. It also risks drawing further attention from government regulators, who see problems with Amazon using its strong position in shipping to do things that look, let's say, less than fully competitive both on the retail and digital media fronts. It's not exactly Windows shipping with Internet Explorer, but it's closer to Windows shipping with Internet Explorer  than everyone would like.

And indeed, Amazon is worried about exactly this, mounting an ad campaign called "Don't Break Our Prime" that suggests antitrust bills in the works in the US Congress will split Amazon's flagship program into separate chunks. (It's part of an overall "Don't Break What Works" campaign that seems mostly preoccupied with perceived threats to Amazon and Alphabet.)

Going forward, I think you have to think of the increasing interconnectedness of Amazon Prime as both an asset and a risk. In the near future, it's probably more of an asset, but if this week in tech has proven anything, the impossible yet inevitable can always occur.

Some other Amazon stories:

Amazon Workers Begin Voting on Union at Another Staten Island Facility - The New York Times

The balloting will take place this week and could produce the second union at an Amazon facility in the United States.

How the “Amazon Way” is transforming the future of work - Vox

The e-commerce giant’s labor issues expose the complicated truth about getting what we want when we want it.

[2204.10920] Your Echos are Heard: Tracking, Profiling, and Ad Targeting in the Amazon Smart Speaker Ecosystem

Smart speakers collect voice input that can be used to infer sensitive information about users. Given a number of egregious privacy breaches, there is a clear unmet need for greater transparency and control over data collection, sharing, and use by smart speaker platforms as well as third party skills supported on them. To bridge the gap, we build an auditing framework that leverages online advertising to measure data collection, its usage, and its sharing by the smart speaker platforms. We evaluate our framework on the Amazon smart speaker ecosystem. Our results show that Amazon and third parties (including advertising and tracking services) collect smart speaker interaction data; where Amazon shares it with as many as 41 advertising partners. We find that Amazon processes voice data to infer user interests and uses it to serve targeted ads on-platform (Echo devices) as well as off-platform (web). Smart speaker interaction leads to as much as 30X higher ad bids from advertisers. Finally, we find that Amazon's and skills' operational practices are often inconsistent with their privacy policies

Introducing the $1 billion Amazon Industrial Innovation Fund

Amazon is investing $1 billion to spur supply chain, fulfillment, and logistics innovation and further improve the customer and employee experience.

Leaked Amazon audio shows CEO Andy Jassy address several of the company's most pressing issues — but dodge employees' top concerns about low pay

It was an odd omission given employee compensation has become a hot-button issue at Amazon in recent years.

Amazon acquires India’s GlowRoad in social commerce push – TechCrunch

Amazon has acquired the Indian social commerce startup GlowRoad in an all-cash deal as the e-commerce giant makes a push into one of its key overseas markets

County grants approval for Amazon's helix-shaped HQ tower | AP News

FALLS CHURCH, Va. (AP) — The Arlington County Board gave unanimous approval Saturday to Amazon's plans to build a unique, helix-shaped tower as the centerpiece of its emerging second headquarters in northern Virginia.

Amazon will announce its Q1 earnings at 4PM Eastern Time tomorrow, April 28th. I will probably have a gloss on that news (good, bad, or indifferent) either later that day or early on Friday. Until then, stay well, and more thoughts about Amazon and the weird world it and we all inhabit soon.