Quick Thoughts: Amazon lights a Fire under Apple and Google

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–          AMZN’s $99 Fire TV is quite differentiated vs. rivals at similar price points (AAPL TV, Roku, etc), slotting in between the bare bones $35 GOOG Chromecast and $400+ Xbox One and PS4.

–          Fire TV is well designed to promote AMZN’s content and e-commerce, leveraging the company’s extraordinary retail clout, and the platform’s best in class performance to drive sales.

–          AMZN notably excludes GOOG’s YouTube from its platform, just as AAPL TV and GOOG Chromecast exclude AMZN Prime Video, evidence of the rivalry developing in the category

–          Rumors of an AAPL/CMCSA tie up are not credible – AMZN should play very well at $99, with the cheap Chromecast and expensive Xbox One and PS4 leading at their respective price points.

Earlier today, Amazon joined the ranks of Apple, Roku, and Google in offering a dedicated TV streaming device. The device boasts impressive specs, though it enters a crowded market of existing streaming devices that include set top boxes, internet enabled TVs and Blu-Ray players, as well as a second generation of internet connected game consoles. All are clamoring to be the primary access point for streaming content in the living room. Moreover, streaming apps and content providers are striking deals to have their content shown on these devices. Netflix and Hulu have made ubiquity across devices a business priority, while TV and cable providers are more cautious in selecting platforms for their apps. Comcast and Apple were rumored to have been in talks recently about enabling cable TV and apps on Apple TV, but negotiations appear to have fallen apart to an impasse over customer control. Today’s announcement also underscores a growing rift between the major consumer platforms: Apple, Google and Amazon.

The Amazon Fire TV was unveiled by Amazon’s Kindle VP Peter Larsen in a space designed to look like a living room at Milk Studios in Manhattan’s Meatpacking District. Larsen was quick to point out that Amazon has been selling millions of streaming devices via its website. Indeed Google’s Chromecast has been the best selling electronic device on Amazon’s chart for most of the last 9 months since its release. On that same chart, Roku’s Streaming Stick is number 3, while the Roku 3 and Apple TV are at numbers 5 and 8 respectively. All of the other top selling electronics in the top 10 are versions of Amazon’s Kindle. Larsen emphasized the other streaming device makers suffer from three problems: difficult search interface, slow performance, and closed ecosystems.

To mitigate difficulties with search, Amazon touts a voice control feature, a la Apple’s Siri, that enables a user to state a title, subject matter, or actor/director to get results. Amazon tapped actor turned reality star Gary Busey to appear in a humorous ad highlighting the device’s voice interface ease of use. Amazon also takes a swipe at Roku via Busey talking to inanimate objects in the ad. At $99, the Amazon Fire TV is priced competitively against the incumbent devices like Apple TV and Roku’s streaming player and takes things up a notch in terms of specs. Fire TV boasts a quad core processor, 2 GB memory, dedicated GPU, 1080P video and Dolby Digital audio. Other features include Cloud Drive to view personal photos and videos, Kindle integration to enable X-Ray / IMDB access while watching content, and Free Time to enable parental controls like limiting content and setting timers. The Fire TV even functions as a gaming device with an optional $40 controller that comes with roughly $10 in Amazon media credits. The Fire TV’s true gaming capabilities are somewhat suspect, as games previewed seem to be emulations of mobile app games rather than those played on high performance consoles like Microsofts’s Xbox One or Sony’s PS4. Still, games offered on Amazon TV may be good enough for casual gamers and budget conscious consumers with average games priced at about $1.85 according to Amazon. In terms of features, the Amazon Fire TV appears to pack the most punch when compared to rivals.

Amazon has also took another swipe at rival platforms by touting Fire TV’s openness, as it enables a sea of other apps including Netflix and Hulu to coexist with its own Prime instant video service. Of course, notably absent from the Fire TV are apps that enable Apple’s iTunes content or Google’s YouTube. Similarly, unlike Netflix and Hulu, which are available on just about every device currently sold, Amazon’s Prime Video is not supported by either Apple TV or Google Chromecast. There are work arounds to view Amazon content on the latter, but no firm app support for an Amazon Prime app.

While the field of streaming entrants appears crowded, there is still a lot of runway left, with dedicated set top streaming device penetration at under 20% of households according to Parks Associates. While some 96M+ US households are still multichannel video subscribers according to SNL, streaming video numbers are still well below. According to Nielsen, only 16% of US households have Internet enabled TVs. Netflix has 31M+ US subs and 44M+ globally with even more room for growth abroad. Based on cryptic earnings quotes and back of the envelope shipping cost calculations, Amazon has between 20-30M Prime subs in the US. Hulu just passed the 5M mark. While subscriber rolls are growing fast, device sales have also been meaningful. Apple TV has sold over 10M units and Chromecast has likely sold at least in the upper single digit millions. Microsoft’s Xbox One and Sony PS4 have together sold over 11M consoles globally since launching in November and both feature comprehensive streaming video capabilities.

Fire TV offers a lot for the money, and leveraging Amazon’s extraordinary retail clout, could easily move to the top of the leader board. In particular, it is a threat to Apple TV and Roku, both of which compete at a similar price point and offer somewhat inferior performance and features. Chromecast, with its $35 price point and plug-in form factor, seems to have found its legs at the low end and will likely see little impact from the Fire TV. Similarly, the Fire TV’s gaming capabilities, based on relatively low performance Android titles, are no threat to the far more capable Xbox One and PS4 consoles. In the end, I think Fire TV could be a real spur to Amazon’s Prime Video streaming TV service, which is the point of the whole thing anyway.

For our full research notes, please visit our published research site.

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