• by Diane Mermigas , February 25, 2011

Rapidly evolving content economics is like a tennis match. The ball is in a different court every day. The ultimate winner will generate more revenue per customer in more ways with social marketing, transactions and various layered services.

Despite all the fuss over Netflix, Hulu and iTunes, the honors could go to cloud-based Amazon. It already leads in bringing those areas together around content and products by thinking outside the silo.

Amazon's profitability is rooted in its savvy use of digital interactivity to integrate every option for simultaneous consumer consumption, access and communication. It already functions as a seamless facilitator in the computing cloud, where it has done business since 2006.

Where Netflix (for now) is winning the short-term battle in streaming media, Amazon is positioned to win the integrated interactive war.

Case in point: CBS finally joined rival broadcast networks, signing on to Netflix. CBS is licensing only classic series no longer in ad-supported prime time or in the first cycle of syndication. That way, it doesn't threaten those two existing revenue streams. (At some point, that kind of juggling may not be possible as digital replaces traditional delivery.)

The next day, Netflix's meteoric stock plummeted on news of intensified streaming video competition from Amazon, which could trump even Apple's controversial new subscription service, as well as cable operators' anywhere offerings.

Although Amazon's streaming video service is less than one-third of Netflix's business, it would be easy for Amazon to match or exceed Netflix's 20,000 streaming titles at less its starting $7.99 monthly subscription price. Amazon just began offering free streaming of about 5,000 titles to its 10 million Prime customers, who pay $79 annually for free two-day shipping on anything anywhere.

Amazon says it has 90,000 movies and TV programs waiting to stream for free, virtually rent for $3.99 or buy for $14.99. The company is nudging into Apple iTunes' territory -- especially when, not if -- it offers streaming apps on Apple's own iPad or Apple TV.

It includes social networking (from community chats to recommendations) which Netflix doesn't have. Even Facebook is trying to leverage its 650 million-plus members into with real-time "American Idol" voting and a foray into television that can bring all the chat and e-commerce that can go with it on mobile-connected as well as in-home HD screens.

Amazon's Prime subscriptions generate about half a billion dollars in annual revenue and could double with this new video streaming push, allowing most of the proceeds to go to licensing choice content from Amazon loyalists.

For Amazon, streaming video (windowed or otherwise) is just one part of a bundled proposition; it is a means to a multifaceted service's end. It is not unlike the impact Amazon's Kindle platform has had on publishing and the $1 billion e-book market of which it has better than 50% share.

Even when Amazon subscribers pay per view, they will be enveloped by interactive functions and services no one -- not even Apple -- can match involving Amazon's well-oiled transaction, social and search infrastructure. The result is maximum returns for consumers and content providers that generally restrict themselves by viewing distribution deals strictly in video terms.

According to one analyst, CBS will be able to generate more revenues per subscriber from its new Netflix arrangement than from retrans fees arrangements with cable system operators, which generally have been heralded as the long-awaited second revenue stream for video producers. Even those retrans arrangements may prove fragile in the future; cloud competitors beat cable operators to the streaming punch with video, so-called "addressable advertising" and marketing transactions they still can't quite get.

Amazon can trump them all because it owns the sweet spot everyone else wants. It already has redefined advertising and marketing by making the search, recommendations and transaction of products individual and personal. It can make the economics work for both content providers and consumers. As I observed in this column two years ago, Amazon's vast, efficient cloud-based services are a springboard to other digital business lines. It is the ultimate digital Trojan horse.

Because Amazon already has well-regarded open, social, recommendation, transaction and storage elements built into its universal dominance, it has the ability to best Netflix and ad-supported Hulu and even Apple.

Google, which has pledged to spend $100 million on content to bring its YouTube into the commercial streaming video fold, provided another stark reminder this week of how ugly, greedy and controlling gatekeepers can get with its new algorithm system. It will make it more difficult for many content aggregators to secure the favored search placement on which their business relies.

One possible outcome from recent events: Amazon could take advantage of Netflix's wildly declining stock price and peaked performance by acquiring it and its subscriber list, since Netflix already heavily relies on Amazon's Web services.

Another possibility: Apple could use its $60 billion in cash to buy Facebook and add an instant social infrastructure to its hardware and content ecosystem to more effectively compete with Amazon.

But Amazon still trumps with the cloud, which is all about the ability to easily access and pay only once for content on any device or platform -- even if means layering in more services, pricing options that take advantage of the direct relationship with consumers.

In a recent report on the subject, Needham analyst Laura Martin cites expert forecasts suggesting more than one-third of the digital universe will be in or around the cloud, half of which will be directly tied to entertainment content. Cloud computing services are expected to generate $15 billion in content-related revenues by 2014.

The business of trying to figure out and capitalize on consumer behavior is not easy; the fast-moving, rough-and-tumble new world of interactive video is not for the faint of heart. The prospects for interactive content economics are becoming more exciting as leadership players like Amazon bring a new sense of relevance and integrated sensibility to the playing field.