What's on Amazon: The e-tailer's quest to make TV hits

A new show called "Alpha House," whose pilot filmed in New York late last month, has many of the ingredients necessary for television success.

John Goodman, coming off notable roles in Oscar-winning movies "Argo" and "The Artist," is the star. Bill Murray did a cameo. Stephen Colbert shot a teaser for the next episode of the series, which is written by "Doonesbury" cartoonist Garry Trudeau.

Yet this is not the project of a big movie studio or a television network but rather of Amazon.com Inc, the world's largest Internet retailer.

Amazon, along with Netflix, Google, Apple, Intel, Microsoft and others, aims to play a major role in the Internet-driven transformation of Hollywood. Like Netflix, it has decided that it must move beyond being a distributor of others' shows to producing top-drawer programming of its own.

"I'm always worried I'm going to be in a YouTube video," Goodman told Reuters during a break in filming at the cavernous Cine Magic Riverfront Studios in Brooklyn, New York. "But this is just the same as a TV set - full production value, great director, good technical people."

"I'm very interested to see where this is going to go - TV distribution over your computer," he added.

Amazon's approach mixes the tactics of traditional network TV with innovations from the online world. It does not sell a stand-alone video subscription service like Netflix - instead, it bundles streaming video with its Amazon Prime membership program, in which shoppers pay an annual fee of $79 for two-day shipping on most of their purchases from Amazon.com.

Amazon hopes original shows will encourage more people to sign up for Amazon Prime. The online retailer says Prime members tend to buy more goods, but it does not give specifics.

Unlike Netflix, which turned a lot of heads when it plunked down an estimated $100 million to produce two seasons of the drama "House of Cards," Amazon is creating pilots for about a dozen shows.

Amazon has not disclosed how much money it is investing in original video production, but some media experts estimate it likely will cost more than $10 million to produce the pilots. It will pick the shows to develop into full seasons based on the feedback it receives about the pilots, which will be posted online.

"If Amazon has a breakout hit, Hollywood will take them very seriously quickly," said Dave Davis, founder of Arpeggio Partners, a boutique investment bank focused on entertainment.

"With a hit, they will be able to attract subscribers to the only place they can get that show," he added.

Chasing Netflix

The "Alpha House" set at Riverfront Studios was bustling last week with more than 100 makeup artists, set builders, camera operators and other crew members. A mock-up of the Senate floor dominated the scene, along with a large green screen used to superimpose actors alongside footage of real politicians.

Trudeau said Amazon provided everything needed to get "Alpha House," about four senators living together in a rented house in Washington, D.C., done right.

"They're moving fast and big," he said. "They want to go out and make a lot of noise all at once."

Trudeau had been trying to make "Alpha House" into a TV show for several years.

"In the last year, all at once there were new, serious players in this business, like Amazon, Netflix and Hulu," he added. "The project would not have been possible a year ago."

The streaming video business has moved remarkably quickly from reliance on licensing of old movies and TV shows to head-on competition with long-dominant broadcast networks, cable companies and movie studios.

Netflix broke new ground this year, making all episodes of the first season of "House of Cards" available only through its subscription video-streaming service. The political drama boasted A-list movie talent, including two-time Oscar winner Kevin Spacey. Netflix executives say it has been the most-watched show on the service in every country that it operates and critics gave it solid reviews.

Only-on-Netflix series coming later this year include the revival of onetime Fox comedy "Arrested Development" and murder mystery "Hemlock Grove," directed by horror movie producer Eli Roth.

"Everybody wants to have originals so they can stand apart from their peers, as non-exclusive content becomes a commodity," said Tony Wible, media and entertainment analyst at Janney Montgomery Scott.

"Originals have been very successful for traditional TV networks, and I don't see why it won't be successful for these emerging networks, too," Wible said, citing AMC's success with shows such as "Mad Men," "Breaking Bad" and "The Walking Dead."

Roughly half the pilots Amazon is shooting are comedies and half are kids shows. They include "Browsers," a musical comedy starring Emmy and Tony winner Bebe Neuwirth, and "The Onion Presents: The News," based on the satirical news service.

Established TV and movie players seem unperturbed by Amazon's efforts, considering the company just another entrant, among many, in the quest for original content.

"We are not nervous. We are aware of the competition and we have reacted accordingly," Eric Kessler, president of HBO, said during a technology industry conference in February.

HBO, a unit of Time Warner, has thrived by producing high-quality TV shows of its own. It created HBO Go in February 2010, giving HBO subscribers access to its content from the Internet and mobile devices. This service has 6.5 million registered users now.

Democratic Selection

Producing original entertainment carries risks for Amazon; it's expensive, and there's no guarantee that hits will come. The company has spent millions of dollars developing feature-film scripts in recent years and has yet to green-light a movie.

"They want to walk before they run, and TV is a less-expensive way to begin," said Marty Weiss of Martini Shot Films who has a movie script, "The Alchemist Agenda," on Amazon's development slate. Weiss rewrote the script about five months ago and has not heard back from Amazon Studios since handing the revised version in.

A network TV show costs $2 million to $4 million per hour to produce, depending on whether it is a cheap reality TV show or a more expensive scripted series like a drama, according to Janney's Wible. The first season of a new TV series can range from seven to 13 shows, so it would typically cost $7 million at the low end to $26 million at the high end, he said, stressing that these were very rough estimates.

The price tag varies depending on whether it is a reality show or scripted, the time it takes to film and whether the project is co-produced or not.

Roy Price, director of Amazon Studios, would not say how much Amazon is spending on its pilots, which take about a week to film and run the standard 22 minutes. Price, who developed TV series at Walt Disney Co from 1995 to 2000, said the company is not cutting corners.

Amazon has a market value of $120 billion and generated more than $4 billion in cash from operations last year. It spent $4.6 billion on technology and content, including video content, in 2012. That is almost half the market value of Netflix.

"Our process is different from what various other parties are doing," said Price, when asked about Netflix's big bet on "House of Cards." "The pilot process works well for us. We would like some evidence that customers are eager to see a show before committing to a TV series."

Amazon has delved deeply into its gigantic customer database to find the common characteristics of popular TV shows: original, scripted series with strong characters and actors did better than reality TV or special-effects-heavy sci-fi series.

The main requirement was great scripts, so the small Amazon Studios team read more than 3,000 scripts from May 2012 to early 2013. The team included Price; Joe Lewis, a former 20th Century Fox production director who heads original programming at Amazon Studios; Sarah Babineau, a development executive, and about three dozen freelance story analysts.

This spring, when the pilots are scheduled to be completed, Amazon will post the shows online for free for anyone to watch. It will then collect data on which shows are viewed and shared online the most, and monitor reviews and other customer feedback to decide which projects to pursue further.

Amazon has the option of syndicating a series later if it is popular. There are no plans to create a stand-alone video streaming service or to run ads with the shows, Price said. "The goal is to create great content that will enhance the value and attractiveness of Prime."

Great content, in the end, will depend on simple, non-digital ingredients: quality scripts, high production values and talented stars.

Goodman was planning to jet off to Berlin to shoot another big-budget movie after the "Alpha House" filming ended. But he suggested that he would show up for more Amazon-backed shows if invited.

"They keep me stored in a warehouse and ship me out when they need me," Goodman jokes. "The shipping charges are substantial."