Amazon Prime Video Should Get a Big Boost From AI: Morgan Stanley | Invesloan.com

YouTube and Netflix look poised to keep their gold and silver medals in the streaming wars as AI upends Hollywood, allowing for more personalized content and supercharged recommendations.

But Amazon Prime Video is well-positioned for bronze, if not an even better spot on the podium.

Amazon could be saving billions, among the most in the industry, in programming costs this year by using AI, according to a chart in a July 10 note by Morgan Stanley media analysts.

Their estimate is based on Amazon saving about 10% in production costs on scripted originals in its mammoth programming budget, which Morgan Stanley projects will be $24 billion in 2025.

However, the vast majority of that budget will be spent on content that already exists, as licensed movies and shows make up a massive chunk of Prime Video’s library. A smaller slice will go toward Amazon’s steadily expanding sports portfolio.

AI could eventually bring down costs of making scripted TV and films by 30%, wrote Ben Swinburne, who led the team of Morgan Stanley analysts. Even in that best-case scenario, he said that studios may not save much more than 10% in total programming costs, assuming that new shows and movies are 50% to 60% of their costs.

Media giants will likely spend heavily on AI tools, but Morgan Stanley thinks that investment will soon pay for itself.

“Leveraging Gen AI tools will not be free,” Swinburne wrote. “Technology adoption may incur investment costs either from licensing the technology or developing in-house productivity tools. However, the net effect could be a reduction in production costs.”

Sports costs will keep climbing

Hollywood is on edge about AI, and for good reason. Any cost savings for studios likely means less money in someone’s pocket, whether they’re an animator, graphics designer, or voice actor.

But AI companies and tech gurus won’t be the only winners in this brave new world.

Morgan Stanley believes sports rights will continue to soar in value, even as the pay-TV bundle steadily erodes. Sports rights deals have already risen 10% per year since the pandemic to a third of total industry spending, potentially because live games appear to be generative AI-proof — unlike movies or TV shows.

If media companies use AI to save money on scripted content, they’ll have more financial firepower, which could further intensify bidding wars over live sports rights.

“We expect a large proportion of those savings reinvested elsewhere in the value chain, including marketing, talent costs, and sports rights,” Swinburne wrote. “Sports rights are already seeing the benefit of budget shifts away from TV & film.”

Ballooning sports rights costs would be especially painful for Fox, NBC-parent Comcast, and Disney, which have the heaviest sports exposure as a percentage of their programming budget.

By contrast, tech giants like Netflix, YouTube, Amazon, and Apple have put the lion’s share of their content budgets elsewhere, even though they’ve all upped their investments in sports.

So if AI makes scripted content costs shrink and sports rights values surge, as Morgan Stanley expects, then those deep-pocketed disruptors are likely to get even richer.