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Estimate the market size of Prime video.

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My framework for analyzing and answering this estimation interview question:

  1. CLARIFY:
    1. US v. global? Your choice. For this choice I will focus on the US.
    2. Would you confirm that the Prime video subscribers includes both Amazon Prime subscribers and individuals with no Prime subscription except video? Yes.
    3. Do you want me to include subscribers of Amazon Prime Video only or people who also purchase Amazon Prime Video as one offs? Your choice.
  2. PRIME VIDEO BACKGROUND: Amazon is an eCommerce giant who’s mission is to build a place where anyone can purchase anything. Prime video is a service of Amazon where anyone who is an Amazon Prime member – i.e. pays a subscription fee to Amazon for free 2 day delivery and special discounts on items (Prime Day, etc.) – has access to Prime Video. Prime Video is also a stand alone subscription ($8.99 / month) that people can purchase as well, though certain countries require a full Prime subscription. Prime video offers either ad free or with ad TV shows and movies. Certain content is produced in Prime studios.
  3. EQUATION: For this equation, I’d like to focus on US only. Total Prime Video users = Amazon Prime members + Amazon Prime video only members + One off Amazon Prime video purchasers
  4. BREAKDOWN UNKNOWN:
    1. Amazon Prime Members:
      1. US Population: 330M
      2. US Population with access to Internet: 90% (330M * .9 = 297M people)
      3. Average Lifespan: 0-80
      4. Average Number of People with Internet / Age Year: 297M / 81 = ~3.67M people / age year assuming even distribution
      5. Age of Amazon Prime Subscriber: 18 – 80 (i.e. 80 – 18 = 62 age years)
      6. Total Potential Amazon Prime Subscribers: 62* 3.67M = 228M
      7. Shops on Amazon: 
        1. Given Amazon is extremely popular as an eCommerce site in the US, let’s assume that 80% of the people on the internet use Amazon.
        2. .8 * 228M = 182M
      8. Average Household Breakdown: Let’s breakdown the households in the US who use Amazon into 3 groups. % of population is estimated based on life experience.
        1. Type of Household % of Population Total Population (Rounded)
          Single 40% .4 * 182 = 73M
          Couple 30% .3 * 182 = 55M
          Family of 4 30% .3 * 182 = 55M
      9. Likelihood of Prime Account: 
        1. Let’s assume that households have 1 account / household on average. For example, if a family is a couple, there is only 1 account / 2 people. If the family is 4, there is only 1 account / 4 people.
        2. Let’s also assume that if someone uses Amazon, across the board there is 80% chance they are a Prime member in the US.
        3. Type of Household Potential # of Prime Accounts # of Prime Accounts
          Single 1 * 73M = 73M .8 * 73M = 59M
          Couple .5 * 55M = 27.5M .8 * 27.5M = 22M
          Family of 4 .25 * 55M = 14M .8 * 14M = 11M
        4. Total # of Amazon Prime Accounts: 59M + 22M + 11M = 92M
    2. Amazon Prime Video Only Subsribers:
      1. Average Age of Amazon Prime Video Only Subscriber: Let’s assume that the people who are Amazon Prime Video only subscribers are also only 18-80.
      2. Total Potential Amazon Prime Video Subscribers: 62* 3.67M = 228M
      3. Total Potential Amazon Prime Video Subscribers – Amazon Prime Account Holders: 228M – 92M = 136M
        1. 136M / 62 age years = 2.2M / age year (ages 18 – 80)
      4. Total Population with Video Subscription: Let’s breakdown the age groups and assume the likelihood of them purchasing an online subscription video service.
        1. Age Bucket Total Population Likelihood of Video Subscription Population with Video Subscription
          18 – 39 21 * 2.2M = 46M 80% 46M * .8 = 37M
          40 – 60 20 * 2.2M = 44M 60% 44M * .6 = 26M
          61-80 19 * 2.2M = 42M 30% 42M * .3 = 13M
      5. Population with Amazon Prime Video Only Subscription: There are a number of different subscription video services (Netflix, Hulu, Disney+, etc.) Netflix seems to be the most popular. Let’s assume across the board the likelihood of someone subscribing to a video service choosing Amazon Video is 30%.
        1. Age Bucket Population with Video Subscription Population with Amazon Prime Video Only Subscription
          18 – 39 37M 37M * .3 = 11M
          40 – 60 26M 26M * .3 = 8M
          61-80 13M 13M * .3 = 4M
      6. Total Amazon Prime Video Only Subscribers: 11M + 8M + 4M = 23M
    3. Amazon Prime Non-Subscribers:
      1. Let’s assume that the people renting videos on Amazon Prime are again 18-80. Let’s assume that if a child (under 18) is renting a video, that purchase is under a parent’s credit card, so the non-subscriber is the parent (i.e. above 18).
      2. Likelihood of NO Video Subscription: Above we calculated the population by age with a video subscription. Let’s just use the remainder of that population to calculate the likelihood someone does NOT have a video subscription.
      3. Age Bucket Total Population Likelihood of Video Subscription Population with Video Subscription Population with NO Video Subscription
        18 – 39  46M 80% 37M 46M – 37M = 9M
        40 – 60 44M 60% 26M 44M – 26M = 18M
        61-80  42M 30%  13M 42 – 13M = 29M
      4. Population Renting Amazon Prime Video:
        1. Let’s assume that across the board if someone does NOT have an Amazon Prime or Amazon Prime Video only account, the likelihood of them renting a video on Amazon Prime at some point in the year is 70% (particularly high now because of COVID).
          Age Bucket Population with NO Video Subscription Rental on Amazon Prime Video
          18 – 39 46M – 37M = 9M 9M * .7 = 6M
          40 – 60 44M – 26M = 18M 18M * .7 = 13M
          61-80 42 – 13M = 29M 29M * .7 = 20M
      5. Total Population Renting Amazon Prime Video without Subscription: 6M + 13M + 20M = 39M
  5. TOTAL AMAZON PRIME VIDEO MARKET:
    1. Population Size
      Amazon Prime 92M
      Amazon Prime Video Only 23M
      Prime Video Rental / No Subscription 39M
      Total 154M
  6. ASSUMPTIONS:
    1. If there is a large number of young teens with their own accounts or individuals with second Amazon Prime accounts, the calculations would change / be higher.
    2. Household type population percentages may drastically change numbers.
  7. CHECK: 
    1. Total Amazon Prime Accounts in US: 126M (unclear if this includes Prime Video only, etc.)
    2. Amazon Prime Members / Amazon Users: 65% of Amazon users are Prime Members (unclear if this is US only or global)
    3. Digital Commerce Prime Membership numbers