Read time: 5m 23s

What happened? 

Amazon has laid off hundreds of its employees across its Prime Video and Amazon MGM Studios division. 

They’re also laying off 500 workers at their video game streaming company, Twitch 

More on the story 

Mike Hopkins, senior vice president of Prime Video and Amazon MGM Studios, in his internal memo stated, “We’ve identified opportunities to reduce or discontinue investments in certain areas while increasing our investment and focus on content and product initiatives that deliver the most impact.” 

Amazon acquired MGM in 2022 for $8.5 billion. It helped to increase the content on Amazon Prime Video, Amazon’s popular streaming service and helped to improve the company’s position within the entertainment industry. 

Twitch also laid off 400 workers in March 2023. The layoffs are a part of Twitch's plans to “build a more sustainable business so that Twitch can be here for the long run”, words stated by Twitch CEO, Dan Clancy. 

Amazon: A Quick Glance 

What? A tech company focusing on cloud computing, e-commerce, digital streaming and more. 

Founded: July 1994 by Jeff Bezos 

Current CEO: Andy Jassy 

Market Capitalisation: 1.64 trillion (at the time of writing) 

What factors have led to this? 

• Over-hiring. The 2020 pandemic saw a significant increase with the amount of people purchasing products and services online. Many were flocking to Amazon for this, and to accommodate, they hired more people. According to About Amazon, the company hired 175,000 new employees during the Covid-19 pandemic. To attract new workers, they increased overtime pay and offered workers an extra $2 an hour, according to the New York Times. Now that lockdowns have ended and more people are shopping in person, there wasn’t much of a need for more workers. Amazon laid off over 18,000 workers in 2023, and it’s continuing this in 2024. The recent moves sort of make sense to me. Why have more people than you need when demand isn’t as high as it once was? Although more people could mean more efficiency and even more reliable delivery times, it makes more sense to have what you need in the time you’re in.   

• Over-expanding. Amazon expanded its logistics footprint by roughly 50% to accommodate the pandemic-era demand in 2020. Amazon’s CFO, Brian Olsavsky stated they had, “too much space right now”, compared to the demand they were receiving at the time (during 2022). This ties in with the last point. There has also been a slowdown within the advertising business. Those at the top of the company may think they need to keep some money, somewhere, and in their eyes, laying off some workers is a solution to this. 

What impact could the layoffs have?  

For Twitch: 

• Recent developments point out the challenges facing the company. Amazon bought Twitch in 2014 for $970 million in an all-cash deal. Since then, Twitch has pretty much remained an unprofitable acquisition for Amazon. One reason for this, is that it’s hard to monetise the arm. Ads whilst people are streaming live video game streaming could make users leave the stream. In 2023, a range of C-suite executives left the company, including its chief customer officer, its chief content officer, its chief revenues officer and its chief product officer. Clancy stated, “While the Twitch business remains strong, for some time now the organisation has been sized based upon where we optimistically expect our business to be in 3 more years, not where we’re at today” Past and current developments at Twitch put its future into the spotlight. Will Twitch be no more in the next 5 years? Maybe. But to reduce the chances of this happening, significant changes need to occur. A restructuring could very well be on the table for the company, and it could also impact Twitch streamers who get paid by the company. 

For Amazon: 

• A more streamlined business. Less money going into Twitch and other arms, allow Amazon to pour more money into other divisions of the company. For MGM, people have been cutting back on streaming services due to the current economic environment the world is facing.  

For the Tech industry: 

• Amazon is not the only company to lay off workers this year. From Google, to Salesforce, TikTok and beyond, these tech companies and more have laid off thousands of workers in total. This is a clear sign that the firing trend may not be over yet.  

• However, with the subtraction of former jobs, comes to the hope of new jobs. With the rapid advancements in technology, such as the rise of AI, we can be sure to see new roles made to accommodate this. According to a study by McKinsey Global Institute, AI could contribute to the creation of 20-50 million new jobs by 2030. 

Streaming Wars 

I’m sure you’re familiar with the names of Netflix, Amazon Prime, and Disney Plus. These are all streaming giants, who want the biggest piece of the market share cake. 

Netflix is the biggest streaming service in the world. As of September 30, 2023, they reported 247.15 million global paid subscribers. Netflix also added 13 million subscribers in the last quarter of 2023, defying expectations that its crackdown on password sharing would reduce the numbers. 

I’d say that Netflix is Amazon Prime and Disney’s biggest competitor.  

One aspect that has made Amazon Prime to grow, is their massive catalogue of exclusive TV shows and movies. The Lord of the Rings, Saltburn and John Wick: Chapter 4 are some examples of this. The company has even managed to strike partnerships with sporting bodies, such as winning the right to stream Premier League matches. 

With Amazon making $9.9 billion in profit in July to September in its most recent earnings report (this was up from $2.9bn in the same period in 2022), we can be sure that the company has more than enough money to explore other ways to bring in more money. 

From the 29th January 2024, Amazon Prime will begin to introduce ads for UK subscribers, unless they pay £2.99 per month to take them away. This move, although a decent way to rake in more money for the company, it may drive customers away. No one wants to be paying more, been if it’s just a little more for their streaming services. Given the cost-of-living crisis the UK is experiencing, high inflation and interest rates, as well as the overall economic uncertainty the world is facing, I won’t be surprised if this decision ends up affecting the number of subscribers they will receive in the future. 

Closing thoughts: 

The layoffs Amazon have introduced is sad to hear, but I believe we’ll continue to hear of more in the future. It is a very big company, with thousands of employees globally. They will want to find a way to make Twitch more profitable, so they can increase revenue from that division. 

I think for Amazon to continue to make itself stand out, they will need to continue to strike partnerships and exclusive streaming rights with movies, TV shows and sporting bodies. More deals and perks for members may also help to drive its subscriber count up too. 

However, with all of this being said, some moves may act as a roadblock to increasing numbers, such as the introduction of the £2.99 fee to remove ads. Ads also make up a nice chunk of revenue for Amazon. So if the new move isn’t taken well, they will have to think of alternative ways to increase revenue. 

That’s it for this week!

What are your thoughts on the story? Will the layoffs continue? Will Twitch become more profitable in the next three years? Comment below, message me on any of my social media platforms or you can email me: hello@parahinsights.com 

Until next time, remember to stay curious!

Further resources:

‘Amazon will cut hundreds of jobs, including at game streaming firm Twitch’ - Article by CNN

‘Tech companies announce layoffs’ - YouTube video by ABC News

DISCLAIMER:

This blog is for informational purposes only. Parah Insights is not associated with the news sources in this blog, and sharing does not equal endorsement. Parah Insights does not provide financial, tax, legal or accounting advice – always consult your financial and legal advisors to determine what’s right for you and your business.