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Amazon Web Services is the market leader in cloud computing and the back-end provider for top streaming services.
When Amazon announced that it would buy mini-major movie studio MGM in an $8.45 billion deal, I surmised that the real goal here was to raise the cost of acquiring filmed entertainment for its competitors, making Amazon’s bundled Prime Video option look more attractive. I also nodded to the fact that Amazon is a competitor in streaming video and theatrical movie production, while also being a distribution network for streamers. Amazon also sells other streaming services through its website, and through Fire TV, an Amazon device that makes streaming video available. This simultaneous negotiation and competition can create leverage for Amazon in its dealings with rivals, and moves the company closer to taking a cut out of every economic transaction.
But there’s another side to this: No major streaming service actually delivers its product without the assistance of Amazon. That’s true of the major U.S. movie studios as well. And once you understand the totality of Amazon’s role in entertainment distribution, you begin to see its encroachment into entertainment content in a whole new light.
Amazon Web Services (AWS) is the market leader in cloud computing services. A large segment of the internet runs on AWS servers (about 32 percent in 2020), and the critical nature of this infrastructure is apparent whenever something goes wrong. When you look just at the digital distribution of video, AWS’s dominance grows even further.
AWS is the back-end provider for Netflix, Disney+, Hulu, Paramount+, Peacock, HBO Max, Discovery+, and of course, Amazon Prime. As of February of this year, that list includes the top six streaming services in the U.S. by subscribers; Discovery+, which is not on that list, is merging with HBO Max, and Paramount+ didn’t launch until March. Just from those top six, 558.8 million U.S. subscribers rely on AWS to get their streaming video. (Yes, this is more people than live in the United States; that’s because, as you doubtless know, many people subscribe to more than one streaming service.)
I don’t have to tell you, informed reader, that Disney+, Peacock, HBO Max, and Paramount+ all have a major movie studio behind them (Disney, Universal, Warner Bros., and Paramount, respectively). Only Sony Pictures doesn’t have a streamer, and its films stream first on Netflix. So basically every major motion picture release that gets streamed is tied into AWS as well.
No major streaming service actually delivers its product without the assistance of Amazon.
And there’s more: Studios keep their content libraries in the cloud, and they all have deals with AWS for digital distribution of their theatrical releases, which is how most movie theaters receive and show films these days. AWS also provides movie studios with analytics, security, and other features. Even the mini-majors have these kinds of arrangements, including MGM, which has an existing deal with AWS to “modernize its media supply chain.”
And it’s not just movies. About 1,600 television channels worldwide rely on AWS, including the FOX, ViacomCBS, and Discovery families of networks.
Here’s what all this means. If you are watching a filmed piece of entertainment on any screen—at a theater, at home or on your phone through a digital direct-to-customer stream, on a television network, or on a streaming service, the odds are extremely likely that you’re making use of AWS. It has become the backbone of Hollywood.
So Amazon holds two distribution bottlenecks over rival streaming services, TV networks, and movie studios. First, AWS is the primary back-end provider of delivery of media onto people’s screens. Second, Prime Video and Fire TV are supplementary distributors of that media, and any network or service wanting to maximize its audience needs to get onto those channels.
It’s no accident, then, that a problem arises when entertainment companies negotiate to get what is called “carriage” on Amazon and its associated products like Fire TV. The process can be protracted; it took Disney+ months to get carriage on Fire TV, and it only got it when it agreed to reserve a large chunk of ad space for Amazon. But AWS holds another bargaining chip in these negotiations.
Take the HBO Max/Amazon negotiations. Six months passed before the WarnerMedia service broke through last November with carriage on Fire TV. But the cost of carriage was that WarnerMedia had to extend its existing AWS contract. It’s like a deal between a consumer and cellphone provider where they get a new phone if they extend the cellphone contract a couple of years. That’s good for the consumer, but really good for the company locking in the subscriber; AWS getting WarnerMedia locked up for more years entrenches its monopoly.
Other streamers, including Discovery+, have found their way onto Amazon’s Prime Video Channels. Prime Video Channels is a pretty bad deal for streaming services; while it drives a lot of subscriptions, Amazon keeps 30 percent of the monthly revenue. In exchange for Fire TV carriage, WarnerMedia actually got HBO and HBO Max, which it owns, off of Prime Video Channels, evidence of how unattractive it is to media companies. But given that Amazon runs AWS, and AWS is dominant in delivering video to screens, that clout could be a driver in negotiations that keep companies in Prime Video Channels. Indeed, sources have described Amazon leveraging AWS to force studios to sell through Prime Video Channels.
Because these separate business lines have no relationship to one another within Amazon, this could only be coordinated at a very high level.
Amazon runs a digital film rental service as well through Prime. Just this week, Amazon inked a deal with Universal to become the exclusive rental option for live-action U.S. films, with Amazon-linked IMDb TV getting Universal’s animated titles. What role did AWS, which does the back end for Universal, play in that? “There’s a very clear conflict of interest vis-à-vis AWS and the rest of Amazon’s lines of business,” said Matt Stoller of the American Economic Liberties Project.
That Amazon competes in this arena with streaming companies deepens the intrigue. “It seems that there’s a plausible parallel between Amazon running its retail marketplace and selling its own products on it, and Amazon being the TV data distribution network and also distributing its own TV,” said Tim Bray, a software developer and author who worked for AWS from 2014 to 2020.
In this case, the goal isn’t necessarily to maximize sales of Amazon-branded products by leveraging the data analytics of everyone else on the marketplace. Amazon doesn’t even separately charge for its Prime Video service; it’s bundled into the cost of a Prime subscription. The goal is more to take a cut of every transaction involving video. AWS gets a fee for serving film and TV content in the cloud. Fire TV gets fees, including advertising space, for hosting streaming services. Prime Video Channels gets a large portion of subscription fees for streaming services. And all of this plays together, making it impossible to run a streaming service or movie company without paying Amazon. This is textbook anti-competitive behavior, for what it’s worth: Tying one product to another can be illegal under the antitrust laws.
Because these separate business lines have no relationship to one another within Amazon, this could only be coordinated at a very high level, suggesting that it’s an executive-led strategy. And we actually have a way to find out about this, thanks to the Amazon-MGM merger proposal. The Federal Trade Commission, newly aggressive with the installation of Lina Khan as chair, has begun to conduct a review of the merger. The FTC also has an open investigation into Amazon’s business. Through such investigations, we could find out about these media deals now involving Amazon, the role of AWS in negotiations, and whether any flexing of market power was involved.
The House Judiciary Committee recently advanced legislation that could lead to the structural separation of business lines with a conflict of interest. If AWS was influencing Amazon’s deals over Prime Video and Fire TV, it could be a candidate for divestiture. House Antitrust Subcommittee chair Rep. David Cicilline (D-RI) and Rep. Pramila Jayapal (D-WA), who wrote the structural separation legislation, did not return comment by press time.
Political cartoons in the Progressive Era, when the antitrust laws were first written, often depicted large companies as a giant octopus, with different tentacles constricting rivals. Amazon controls the back-end delivery of filmed entertainment, runs key distribution channels for it, runs a streaming video network, already has a movie studio, and now is trying to buy another. The octopus imagery is apt. Now, regulators can find out if it’s also illegal.
