One simple reason why Amazon is spending over $3 billion on music and video content
The note said that the investment is expected to grow even further, by $1 billion a year, which could slow Amazon's future profit growth.
Why would Amazon go out of its way to invest in its video and music content, when it could spend that money on expanding its core e-commerce business instead?
It all comes down to one major part of its business: renewals for Amazon Prime memberships.
Amazon Prime is a paid membership service that gives free, two-day shipping on millions of products, as well as access to thousands of free TV shows, movies, music, and books and unlimited cloud storage for photos.
It's been pretty well-documented that Amazon Prime members are more loyal and higher-spenders than non-Prime members. A new report by the Consumer Intelligence Research Partners (CIRP) said US Prime members spent about $1,100 a year in 2015, compared to about $600 a year from non-members.
But despite seeing another 35% jump in Prime members in 2015, its growth has been slowing compared to the year before, when it increased 54%. The slowdown is only natural, given its sheer size - CIRP estimates there are 54 million Prime members in the US now - but it also means it's become that much more important for Amazon to make sure those members renew their memberships and stay as loyal customers.
A maturing business
"While Amazon Prime continues to grow nicely, growth slowed somewhat compared to earlier periods," Mike Levin, Partner and Co-Founder of CIRP, said in the report.
"We expect this, as the program matures in the US. So, member retention becomes even more important. Many see free two-day shipping as the primary reason customers try Amazon Prime, but enhanced streaming video and other offerings provide added incentive for members to continue to renew."
That explains why Amazon spent over $100 million on original content in a single quarter at one point, and why Amazon keeps offering discounts to Prime memberships when it wins major entertainment awards, like the Golden Globe.
And expect all these investments to circle back to growth in its e-commerce revenue. Wedbush wrote in the note that it expects Amazon to grow its retail revenue "by $15 billion annually for the foreseeable future" and to double within six years.