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Amazon's Fire TV Is Great News -- for Netflix and Hulu Plus


Priced at $99, it's unlikely that Fire TV will be any more profitable than the Kindle.

Amazon Inc. (NASDAQ:AMZN) was widely expected to unveil a streaming-media device this morning, and the e-commerce pioneer didn't disappoint. At a press event in New York City, the company pulled the curtains on Fire TV, a diminutive set-top box that bears a striking resemblance to Apple's (NASDAQ:AAPL) own Apple TV.
Amazon claims that Fire TV offers faster performance than the competition, and the device also doubles as a video game platform should you feel like running Android titles on your television. In an attempt to make searching for movies easier, voice recognition has been incorporated into the remote control. These are cool features, but at $99, Fire TV is two to three times more expensive than a basic Roku dongle or Google's (NASDAQ:GOOG) Chromecast.
Fire TV includes a standard mix of streaming apps, like ESPN, Showtime, and -- perhaps surprisingly -- Netflix (NASDAQ:NFLX) and Hulu+. That's a bit of a shocker because until now, Amazon has favored a closed approach. "We want to make money when people use our devices, not when people buy our devices," Jeff Bezos told the BBC in 2012. That surely doesn't mean driving traffic to Netflix and Hulu+, both of which compete with Amazon's own streaming service Instant Video.
For comparison, the Google Play Store is noticeably absent from Amazon's Kindle tablet. Similarly, Amazon Instant Video has yet to be made available for Apple TV or Chromecast and remains unsupported on Android. Closed hardware and closed services make for a nice bit of circularity -- tech companies love their tautological business models -- but the results haven't been nice at all.
A study last fall found that Amazon Instant Video was a distant contender in the race for Web traffic, pulling about 1/20 of Netflix's weight. Meanwhile, Kindle sales fell year-over-year in the holiday quarter, while Apple and Samsung (OTCMKTS:SSNLF) both enjoyed a healthy growth in their own tablet shipments. Integration might work when you're out ahead of the pack, like Apple, but it hasn't helped Amazon as the Web retailer plays catch-up in mobile devices and video on demand.
Fire TV is more open. This should help the device gain traction, but it also means that Amazon is unlikely to make money from either direction. Owners have no particular reason to choose Instant Video over more established streaming services like Netflix or Hulu+. The Kindle Store might see some additional traffic from software sales, but Amazon says that the average price for a paid game is $1.85, so we're talking peanuts.
Priced at $99, it's unlikely that Fire TV will be any more profitable than the Kindle, which Amazon sells at cost. That's good news for Netflix and Hulu+, both of which just found a way into even more living rooms. For Amazon, the takeaway is less clear. Is this just one more way to lose money?
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