In addition, Amazon has launched its own television studio, Amazon Studios, which has already produced 14 pilot shows, which include Zombieland, Betas and the Onion News Empire. Amazon Studios is a direct response to Netflix, Inc. (NASDAQ:NFLX)’s own studio, which has created well-received series such as House of Cards and Hemlock Grove.
An upcoming set-top box
As if Amazon Prime and Amazon Studios weren’t enough for Netflix, Inc. (NASDAQ:NFLX) to contend with, Amazon recently announced that it was planning to release a set-top streaming box later this year. Although Amazon’s streaming video is already available across a plethora of platforms, a branded set-top box would lock users into Amazon’s ecosystem, and generate more revenue.
Lab126, Amazon’s business division that created the Kindle, is reportedly working on the set-top box. If Amazon follows the loss-leading business model of the Kindle, then it is likely to offer its set-top box either at a loss or thin margins, in the anticipation of making up the lost revenue later with digital sales. Amazon’s cheap set-top box could seriously upset the balance of the streaming video content market, on both the hardware and software fronts.
First, smaller competitors such as Roku and NetGear, Inc. (NASDAQ:NTGR) would immediately get taken out, since they wouldn’t be able to sell their products at a cheaper price than Amazon. Apple Inc. (NASDAQ:AAPL)’s current set-top box, the iTunes-connected Apple TV, retails for $99 and could also be swept away if Amazon comes in at a comparable or lower price.
Meanwhile, Apple Inc. (NASDAQ:AAPL)’s rumored plans for an iTV would be altered drastically, since an iTV is aimed at drawing customers into Apple Inc. (NASDAQ:AAPL)’s iTunes ecosystem. The last thing Apple Inc. (NASDAQ:AAPL) wants is for users to hook up an Amazon set-top box to its large screen televisions for a comparable smart TV experience. If Apple goes ahead and produces a full-sized smart television, as many analysts speculate it may, then it shoulders a lot more risks than the simple set-top box that Amazon is offering.
Considering that big screen, “non-smart” televisions are getting cheaper, it would also make sense for users to simply hook up Amazon’s device to create a cheap smart television, rather than purchase a pricier model with internal “smart” features. As I noted in a previous post, the average cost of a 50-55 inch non-Internet television is $520, while analysts speculate that Apple’s iTV could cost $1,500 to $2,000. Therefore, Amazon’s new tactic would not only threaten Apple, but also smart TV makers Samsung, Sony Corporation (ADR) (NYSE:SNE) and Panasonic.
Lastly, although Amazon offers a Netflix, Inc. (NASDAQ:NFLX) app for the Kindle, it’s unlikely that it will offer one on its set-top box, which means Netflix will either have to rely on its other hardware partners to support it, or to create a branded set-top box of its own.
The Foolish Bottom Line
I’ve always believed that Amazon has the ultimate goal of being all things to all people. CEO Jeff Bezos is a visionary on par with Steve Jobs and Bill Gates, and I think that Amazon’s long-term strategies will pay off. The company has a history of creating and disrupting markets — first with online shopping, then with e-books and tablets, and now with streaming video. It’ll be interesting to see where Amazon’s new investments in television show production, set-top boxes and international expansion take it over the next decade and beyond.
The article Should These Tech Giants Fear Amazon? originally appeared on Fool.com and is written by Leo Sun.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
