SEATTLE — Against one wall in a Woodinville warehouse hangs a portrait of Adolf Hitler. The U.S. Capitol is in the background, a Nazi flag billowing from the dome. On the opposite wall in the wood-paneled room is a giant window, with a huge inlaid wooden swastika. This Nazi embassy was built from scratch by Amazon.com.
The online retail giant paid for this make-believe world as part of the production of “The Man in the High Castle,” a new pilot that Amazon Studios is expected to release next year. It’s an adaptation of Philip K. Dick’s book of the same name, created by Sir Ridley Scott’s production company, Scott Free. Scott also directed the 1982 film “Blade Runner,” based on Dick’s novel, “Do Androids Dream of Electric Sheep?”
Amazon has made its fortune offering consumers a safe way to spend their money. When it comes to TV production though, the company is making a name for itself by taking on some of the riskiest projects coming out of Hollywood.
Its latest show, “Transparent,” about a father’s transition into a transgender woman, has won critical raves and drawn record viewership on the company’s Prime Instant Video streaming service. Last year’s hit, “Alpha House,” a political comedy from “Doonesbury” creator Garry Trudeau, racked up big audiences by skewering self-absorbed Republican congressmen.
Now, in this warehouse, Amazon is prepping a pilot, based on Dick’s morally ambiguous dystopian novel, where Germany and Japan have divvied up the United States after defeating the Allies. In this alternate history set in the 1960s, tensions are rising between the Germans, who control the eastern U.S., and the Japanese, who control the West, while a resistance movement grows in the middle.
“We’re not trying to be meek,” said Roy Price, the vice president who runs Amazon Studios. “We’re trying to be interesting.”
Rather than producing formulaic pabulum so common on network television, Amazon Studios is consistently producing programming with verve. It’s seeking programs that may be controversial, hoping to create shows that spark conversation and generate loyal followings.
“You can’t be meek about it or be a wallflower,” Price said. “That’s actually the riskiest approach.”
That’s not just a bold bet for Amazon Studios; it’s a daring, and expensive, gambit for the company itself. Amazon is pouring what Bernstein Research analyst Carlos Kirjner estimates is as much as $2 billion this year to buy and create programming for its Prime Instant Video customers.
In the company’s quarterly conference call with analysts in July, Chief Financial Officer Tom Szkutak said the company planned to spend $100 million on original series in the third quarter alone.
Willing to lose
Amazon has long been willing to lose huge sums of money, even for several years, on strategic opportunities, sometimes bleeding rivals who can’t match its long-term investment. With Amazon Studios, the company is hoping its conversation-generating programs will persuade consumers to sign up for its $99 a year Amazon Prime service, which offers two-day shipping on products at no extra charge, and streaming-video content. Prime members are Amazon’s best customers, spending three times as much as non-Prime shoppers, according to some analyst estimates.
“In addition to streaming free content, they have great purchasing patterns, doing a lot of cross shopping on physical products, as well as converting to paid digital video and other digital products,” Szkutak said during the analyst call. “We really think it’s a great service, and that’s why we are investing in it.”
Amazon won’t reveal much data about its Prime members, including the growth related to its video offerings, so it’s difficult to measure whether the cost of luring customers to Prime with edgy, expensive programming is worth the investment. But the spending comes when shareholders are growing restive about the company’s thin margins. Amazon lost $18 million through the first half of 2014 and reported a third-quarter operating loss of $544 million Thursday.
Bernstein’s Kirjner, who believes Amazon has roughly 42 million Prime subscribers, writes in a research report that the company would have to add 10 million to 20 million more subscribers to break even on the $2 billion he estimates it’s investing in content. Kirjner writes that the investments are “a concern in large part because of the lack of clarity” on the business. In the end, he said, “it is quite plausible that the investments will create value for Amazon and its shareholders.”
First-series success
Certainly, Amazon believes it. While the company releases few details about its operations, it has crowed about the success of “Transparent.”
Amazon has called the show the “most binge-watched” series on Prime Instant Video, with nearly 80 percent of viewers watching two or more episodes on the same day.
The show has gotten raves in TV Guide, New York magazine and Variety, leading some Amazon execs to whisper that it has a shot at winning an Emmy, just as Netflix has done with “House of Cards” and “Orange Is the New Black.”
Amazon said it recently ordered a second season of “Transparent” for 2015.
Amazon’s critical success stands in contrast to the history of tech companies that have tried to produce shows. Microsoft and Yahoo, among others, stumbled with original programming, which gave some producers pause when Amazon came knocking.
“We didn’t initially take this project to Amazon,” said David Zucker, executive producer of “The Man in the High Castle” and president of Scott Free’s TV unit, which has also produced the CBS legal drama “The Good Wife.”
But after Amazon expressed interest in the “The Man in the High Castle,” Zucker checked with other writers, directors and producers who have worked with Amazon Studios. And he watched the programs the company has developed.
“They established their bone fides fairly early,” Zucker said. “They’ve encouraged us to be very risk-taking in the material.”
Bezo’s advice
Chief Executive Jeff Bezos stopped by “The Man in the High Castle” set at the Paramount Theatre. Director David Semel said Bezos encouraged the show’s creators to produce something “disruptive.”
“He was really dialed into what we were doing,” said Semel, a Hollywood veteran who’s also directed programs such as “House M.D.” and “Ally McBeal.”
When Amazon launched its studio business four years ago, it would have been hard to imagine that its marquee show would feature a transgender heroine and an upcoming pilot would have Nazis setting up shop in the U.S. Capitol. But the edgy programming choices are winning the company converts.
“That was the goal,” Price said. ” And it’s happening.”
“We’re not trying to be meek; we’re trying to be interesting.”
