) is reportedly planning to sell set-top boxes of its own and could
introduce the device during the upcoming holiday season. This will
put the company in direct competition with Roku, Motorola and Apple
). The set-top box will enable Amazon Prime video service to stream
directly to TVs and will also feature apps and services from other
parties. The company has been competing with Netflix (
) for a long time, but hasn't really taken true advantage of its
distribution capabilities until now. It can sell the set-top box
directly online, or strike partnerships with the pay-TV companies
to distribute them. We believe that the idea is not to make money
from this hardware, but to promote the services offered through it.
In all likelihood, Amazon is also going to promote sales of its
regular merchandise through in-built apps in these set-top
Our price estimate for Amazon stands at $280
, implying a discount of 5%-10% to the market.
See our complete analysis for Amazon
Amazon's Advancement In Streaming Content
Amazon had over 22,000 titles in its streaming library in August
2012, which represented 70% growth in 2012 alone. By the end of
June 2013, the number of streaming titles increased to 41,000,
representing an annualized growth of roughly 100%.
Amazon continues to strike new deals and is placing greater
emphasis on kids-focused programming. The company mentioned that
such programs are one of the most watched TV genres on its Prime
video service. Last year, several analysts attributed the decline
in TV ratings of Nickelodeon to more kids watching programs on
alternative platforms such as Netflix. This again reinforces the
popularity of kids-focused content on the Internet. Amazon can
leverage its recent deal with Viacom to add more content to its
Lovefilm service in Europe. This is another market where Netflix is
trying to expand. Given that Lovefilm is a known brand in the
region, better content along with improved streaming quality and
user interface can help Amazon grow.
Besides this, Amazon Studios, the company's original movie and
series production arm, has been working on bringing more original
content to Amazon Prime's arsenal.
How Big Is The Streaming Business Right Now?
According to a Morningstar analyst, Amazon Prime had more than
10 million members as of March 2012. Assuming that the member count
is somewhere close to 11-12 million currently, Amazon would be
earning close to $870 million to $950 million in annualized
revenues at membership fee of $79 per year. However' that's not
what Amazon is getting from streaming, as Amazon Prime's
subscription offers free shipping along with the access to video
content. The correct question to ask would be - how valuable is
Amazon Prime service to the company? Streaming content is just
acting as one of the key features of the service that attract
According to a report, Prime customers tend to buy twice as much
as the regular customers and overall accounted for 10% of the
purchases in 2012. This proportion could increase going forward as
Amazon continues to invest in the streaming content to lure in more
buyers. There is lot of incentive for the company to promote this
service, which implies that it will be willing to shell out
significant amount of money from its pocket to improve the content.
This means trouble for Netflix as Amazon's ambitions could lead to
a content bidding war, thus putting pressure on the former's
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