Amazon has a lot of space in its warehouses, and that's a good thing. It needs some serious room, you see, to store all those Amazon Fire Phones it didn't sell.

Sales of the less-than-acclaimed phone were so weak that Amazon took a $170 million loss on them last quarter, according to the company's latest earnings report. By the end of the quarter, Amazon CFO Tom Szkutak told Wall Street analysts on Thursday, Amazon still had $83 million worth of Fire Phones in inventory.

Having so many phones just waiting to find a home contributed to Amazon's $437 million loss for the quarter—a ten-fold decline compared to the same time last year—but it wasn't the only thing. Amazon is also pouring money into licensing and producing content for its Instant Video streaming service, an add-on for subscribers to Amazon Prime.

Now, Amazon has never shied away from spending money to make its business grow, but in the past, that has meant building more warehouses to get more stuff closer to more customers. But why is it willing to spend so much on phones and video when neither seems very related to shopping?

Szkutak didn't really answer this question directly during the call, but he said enough to make Amazon's thinking a little clearer. Amazon, it seems, really does see phones and video as related to shopping. In the end, it's all about Prime.

Free Trial Magic

The key is apparently how video works as an enticement to get customers to commit to Prime. For customers who sign up for a free trial of Prime, Szkutak said, those who stream video during that period are more likely to become paying members. "We're adding new Prime members as a result," Szkutak said. But once they come for the video, they stay for the shopping. "The other thing we're seeing is they're buying physical products."

The video effect is also positive on customers who already pay for Prime, he said. They're more likely to renew if they use the service to stream videos, not just for the unlimited two-day shipping.

How the Fire Phone fits into that Prime-centric strategy is less obvious, as its lack of popularity would seem to reflect. Yes, the Fire is a "cheap" way to become a Prime member. Normally a Prime membership costs $99 annually, but it comes free for a year with the Fire, which these days costs 99 cents with a two-year contract with AT&T.

But a year of free Prime really doesn't seem like a decisive enough factor to convince phone shoppers to choose Amazon's new phone over other, more time-tested models—to say nothing of convincing a happy iPhone or Galaxy owner to switch. Amazon's thinking seems to be, if we can sell customers a phone primed for Prime, they'll buy more stuff from us. But the Fire doesn't seem to have enticed the way Amazon's video service has.

Transparent Breakthrough

In the past, Amazon has struggled to find an audience for its original shows, exhibiting more moxie in elbowing out Netflix for licensing deals—most notably HBO—than producing content people actually want to watch. But that appears to be changing. Transparent, an Amazon original starring Jeffrey Tambor as a 70-year-old whose adult children learn for the first time that their father is in fact a woman (a "trans parent"), has earned rave reviews, and Szkutak says streaming on the series has been "great."

Transparenet may or may not be the hit that gives Amazon the same cachet as a maker of original content that House of Cards and Orange Is the New Black have given Netflix. But all it would take is one blockbuster of that caliber to earn such credibility. The recent history of Netflix shows that original hits translate into more subscribers, most of whom pay as much annually for streaming video alone as the cost of a Prime membership that also includes unlimited shipping. This success would seem to justify Amazon's gamble on content of its own.

As for gambling on phones, Amazon might do better to just clear those shelves to make room for someone else's.