Get’em While They’re Young – Amazon looks to lock three year olds into the Kindle Ecosystem

Posted on Thursday 6th December 2012 10:43

The founder of the Jesuit movement, St Ignatius de Loyola, is principally famous nowadays for his maxim on the formative power of education “give me a child until he is seven and I will show you the man”. Well, it seems that Jeff Bezos has taken the saint at his word with Amazon’s latest announcement. Kindle Free Time Unlimited is a movies, games and books subscription service aimed at children from 3 to 8 years old. It offers children (and their parents) ‘unlimited’ access to a bank of child-suitable content from providers like Disney, Nickelodeon and DC Comics and is working with games developers to deliver stripped-down versions of popular games suitable for younger consumers.

Free Time Unlimited has been made possible by a recent software update which overhauled the Kindle Fire’s creaking Android 2.2 based OS and introduced FreeTime, a system which allows the user (ie parents) to restrict access to certain types of content on their devices. Amazon has seized on this feature as a means of extending the use of its Kindle Fire multimedia tablets and securing a regular stream of subscription income from customers.

Here’s the killer, however: price. Amazon is offering Kindle Free Time Unlimited to its Amazon Prime subscribers (we’ve discussed Amazon Prime in a previous post) for $2.99 a profile or $6.99 per family. Non-Prime subscribers have to fork out the premium price of $4.99 per month per profile, or $9.99 for the entire family. That’s (at its most expensive) $10 a month to give your kids access to a huge library of age-suitable entertainment and edutainment content. Which self-respecting Kindle Fire owning parent could possibly say no?

Subscription services do deliver consistent income to a business, but it’s difficult to see how Amazon could possibly be making money on a deal which includes access to streaming media. Amazon is famously protective of its numbers, but Netflix CEO Reed Hastings has gone on the record to say that if Amazon is getting the same terms from content owners that it does, Bezos’ media giant is losing $1 billion a year on its streaming activities.

The signal this is sending to market is that the balance of power in streaming content still lies with the publisher and not the platform. As we have seen already Amazon will currently pay full wholesale price on a Kindle book rental and presumably the same terms apply for children’s e-book content via FreeTime Unlimited. And this is something publishers in particular would be wise to exploit, because if publishers don’t take steps to protect the revenue they receive from content platforms for e-books they will find them being rolled into subscription services that deliver significantly less revenue than the current model. A recent analysis of what revenues a ‘Netflix for Books’ type service would deliver to publishers by Andrew Rhomberg makes for sobering reading. Switching from a model where a publisher gets paid per book to one where they are paid per customer would, according to Rhomberg, net big publishers a mere $12 per user for the whole year.

Given these economics it’s perhaps not surprising to hear that film and TV companies are playing hardball with streaming services. I suppose the bigger question is why Amazon, which already loses money every time someone buys a Kindle Fire, is pressing ahead with a content subscription deal that nets an even bigger loss? The answer lies in hope, and basket size. Amazon hopes that customers who are locked into paying for virtual content will also come to rely on the Amazon ecosystem for buying everything else. And it also knows (although it won’t release the figures) that a cost-effective next-day delivery service, when packaged with a few tantalising content deals such as a bit of media streaming and the odd e-book rental, also leads to increased basket sizes when it comes to buying physical goods.

What’s perhaps most illuminating about Amazon’s new deal, however, is that it shows that Amazon wants to lock people into its content ecosystem from the age of three. It’s a strategy designed to turn children into Amazon customers for life, and implies it’s prepared to play the long game when it comes to acquiring profitable customers. Amazon doesn’t just want our credit card details, it wants our kids’ too.