Amazon Set Top Box Aims to Disrupt the Living Room

by Brad Moon | February 27, 2014 9:55 am

In case you haven’t been paying attention, there has been a heck of a lot activity centered around your living room lately.

amazon-set-top-box[1]The next generation Apple (AAPL[2]) TV streaming box is overdue, Google (GOOG[3]) has opened its Chromecast to app developers, Roku is considering an IPO[4], the Microsoft (MSFT[5]) Xbox One and Sony (SNE[6]) Playstation 4 are fighting for next-gen video game console superiority, TV manufacturers are trying to push costly new 4K Ultra HD TVs, and Netflix (NFLX[7]) has agreed to pay Comcast (CMCSA[8]) — who wants to merge with Time Warner Cable (TWC[9]) — for faster streaming in a developing net neutrality skirmish[10].

Whew! To make things even more interesting, the rumor mill is once again convinced that Jeff Bezos is prepping to launch[11] an Amazon (AMZN[12]) set top box, hoping to take over your TV.

Needless to say, the battle for the living room is fierce right now. Here are five of the toughest competitors any Amazon set top box will face — and the weapons Amazon could use against each.

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Amazon Set Top Box Competitors: Apple TV

amazon-set-top-box[14]Over the years since the Apple TV’s initial release in 2007, Apple has honed the Apple TV experience, dramatically shrinking the hardware, adding 1080p HD support, cutting the cost, improving the UI and building content — not just from its own iTunes, but also through third-party support from Netflix, YouTube and others.

Apple iOS owners can also stream Amazon Prime video from their iPads and iPhones to their Apple TV via the Prime iOS app and AirPlay.

Amazon may find the Apple TV a tough nut to crack. An Amazon set top box could boast Prime video without having to undertake the extra step of streaming from a tablet. Adding game support[15] (as an Android box connected to Amazon’s app store) as rumored would definitely be an advantage, although Apple seems likely to eventually counter that with an iOS games-enabled Apple TV[16]. Pushing original content — something Apple lacks — is also a possibility.

In these days of bandwidth and download speed uncertainty, adding a USB 3.0 port and support for plugging in a thumb drive or external hard drive to physically store purchased video (instead of having to stream it each time or connect to a computer with an iTunes library) is a feature than many Apple TV owners have requested over the years — in fact, the first-generation Apple TVs had a 160GB hard drive built in for just this purpose, a feature lost during cost-cutting and device-shrinking. Amazon could offer it.

AMZN’s best play may simply be to repeat what it does with its other hardware: Undercut the Apple TV’s $99 price tag by selling its Amazon set top box at cost or a loss. It may not capture existing Apple TV owners, but that could take a big chunk out of Apple’s future sales.

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Amazon Set Top Box Competitors: Google Chromecast

amazon-set-top-box[17]Unless it decides to give an Amazon set top box away with Prime memberships, AMZN is going to have a hard time beating the $35 Google Chromecast on price.

The best ploy here is likely to focus on Amazon’s deep content library, pushing the advantages of Prime (including the free 2-day shipping) and not updating the Prime Android app to have Chromecast support — that doesn’t prevent casting Amazon videos played in Google’s Chrome browser, but why make it easy?

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Amazon Set Top Box Competitors: Roku

amazon-set-top-box[18]AMZN has a key advantage over Roku in that it has its own massive media library. Roku is largely reliant on third-party apps to deliver content — including Amazon, which offers an Amazon Instant Video channel on the platform. So unless AMZN yanks that Roku channel (ticking off Amazon customers who are also Roku owners in the process), this would have to be more of a marketing win than an actual victory.

I’d say push the Android (even if it is Amazon’s forked version) to bring developers on board and bury Roku with apps. Developing for the Kindle is different from standard issue Android, but not different enough to make Amazon’s Kindle app selection a wasteland.

The Roku offers game apps, for example, including Angry Birds. But developing for the Roku requires more effort and offers a much smaller potential audience than Amazon’s Kindle. At this moment, Roku offers just 73 games[19] (including 4 versions of the aforementioned Angry Birds).

If AMZN enables its Amazon set top box to run Kindle apps on your TV, it would have a games library that currently numbers over 50,000 titles including top-tier mobile games like Minecraft, Grand Theft Auto and FIFA 14. Plus Angry Birds. The Amazon box would also have a huge selection of other apps, including social networking, productivity and education.

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Amazon Set Top Box Competitors: Smart TVs

amazon-set-top-box[20]The trick with Smart TVs is convincing owners who have already paid for a TV that includes its own Wi-Fi internet connection and apps, to pay extra for another box they have to plug in — and accomplishes the same basic functions. It doesn’t help that Smart TVs from Samsung (SSNLF[21]) and others can already access Amazon Instant Video using an app.

Smart TVs used to be marketed as premium models, but connectivity will soon be a standard feature (33% of TVs sold last year were “Smart,” and that’s expected to hit 44% for 2014[22]) so Amazon can’t afford to simply ignore this demographic.

To convince Smart TV owners to add an Amazon set top box to their home theater, AMZN is going to have to pull out all the guns — keep the price as low as possible (including potentially building into a Prime membership as a freebie), enable apps, make the “box” itself as small and unobtrusive as possible, and make sure the Amazon video experience on an Amazon set top box is superior (i.e., more intuitive and easier to use) than on Smart TVs.

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Amazon Set Top Box Competitors: Xbox One and Playstation 4

amazon-set-top-box[23]Microsoft and Sony sell a lot of video game consoles, and many people are using these as their video streaming box. In fact, at one point the Playstation 3 was named by Netflix as its biggest TV-connected platform[24], worldwide. Amazon Instant video is also available through video game consoles.

So if you’re Amazon looking to gain a foothold in the living room, the only way you’re going to get those Xbox 360, Xbox One, PS3 and PS4 owners to connect an Amazon set top box is to give it to them for free with their Prime membership.

However, AMZN has an opportunity to push the Amazon set top box as an inexpensive streaming box for homes that don’t have a console. And if it goes with the ability to run Kindle apps, it could also make a serious play for homes that would like to have a casual video game console (parents of young kids, for example) but don’t want to shell out $499 for an Xbox One plus $50 or more for each game.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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  2. AAPL:
  3. GOOG:
  4. Roku is considering an IPO:
  5. MSFT:
  6. SNE:
  7. NFLX:
  8. CMCSA:
  9. TWC:
  10. developing net neutrality skirmish:
  11. Jeff Bezos is prepping to launch:
  12. AMZN:
  13. Compare Brokers:
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  15. Adding game support:
  16. iOS games-enabled Apple TV:
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  19. Roku offers just 73 games:!browse/games/by-popular
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  21. SSNLF:
  22. 33% of TVs sold last year were “Smart,” and that’s expected to hit 44% for 2014:
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  24. Playstation 3 was named by Netflix as its biggest TV-connected platform:

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