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Amazon.com (AMZN) Buys Elemental, Gains Tech Advantage in Streaming Wars

Amazon.com Inc. is already making inroads into the video streaming space with its Amazon Prime service. The firm however, is not content with playing second fiddle to Netflix and it has reportedly spent $500M to close this gap. Wall Street Journal reports that Amazon has bought Elemental Technologies in an all-cash deal that is valued around $500M. The marks Amazon’s biggest purchase since it bought Twitch for close to $1B in 2014.

Amazon (AMZN) Elemental Video Processing Amazon.com

Elemental is well-known for its video processing tech that big media houses such as BBC, CNN and HBO use to convert video to the played on mobile devices and on the web. The startup’s tech was used by media houses to live-stream the 2014 winter Olympics to viewers on mobile devices. The Elemental deal is a complete buy-out, but the startup with continue as a brand under Amazon’s AWS.

The streaming wars are on

Without any doubt, video streaming has grown over the years to become big business. Statista has some interesting facts about the prospects of the digital video market in the U.S. For instance, Revenue in the Digital Video market amounts to $8.7B in 2015. Revenue is expected to show an annual growth rate (CAGR 2015-2020) of 9.42% resulting in a market volume of $13.7B in 2020.

Statista reports that online video posts a billion dollar opportunity. For instance, user penetration is at 38.00% in 2015 and is expected to hit 42.79% in 2020. More so, the average revenue per user (ARPU) currently amounts to $88.63. It was noted that the growth potential in online video is bigger than the growth in digital music. In fact, the report notes that annual revenue from video streaming will grow by more than $6B between 2014 and 2020.

Infographic: Online Video - A Billion-Dollar Opportunity | Statista

Amazon to Challenge Netflix for top spot

Amazon Instant Video is slowly getting decent buzz; yet, it still sits in third place behind Netflix and Hulu. However, Amazon has been taking key steps to supplant Netflix from its throne in the U.S. video streaming space. For instance, Netflix planned a Japanese launch for early September and Amazon has said that its Prime Video service will debut in Japan anytime next month.

The purchase of Elemental by Amazon serves a dual purpose for Amazon. The first purpose is that Amazon will offer services to media firms to help them offer a better streaming experience to their viewers. It might interest you to know that Netflix hosts its data on Amazon’s AWS cloud service. The second purpose is that Amazon will use the tech behind Elemental to offer a viewing experience that beats the competition.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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