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Free or Cheap, 'Kindle TV' May Squash the Competition

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Kindle TV is expected to come with ad-supported programming.

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Amazon (NASDAQ:AMZN) has scheduled a big announcement for next week in New York. Although nobody is talking on the record, it seems clear that the company is about to release its long-rumored set-top video-streaming device, along with a subscription service for programming to go with it.
 
We don't know what it will be called yet, but "Kindle TV" is a good bet. We can expect it to come bundled with a service of streaming-video content that will be free, or at least very cheap -- that is, cheaper than any of its competitors, including Apple (NASDAQ:AAPL) can afford to charge.
 
The first report, in the Wall Street Journal on Thursday, stated that the video service would be free, but a later report included an anonymous quote from a company spokeswoman indicating that there were no plans for a free service.
 
Other points in the report were not challenged: The video-streaming service is expected to include commercials, along with television programming and music videos.

That would presumably allow Amazon to charge a very low subscription fee, or no fee at all, for its programming, and represents yet another new business model that Amazon has deployed to disrupt the competition.
 
Currently, Amazon Prime Video is offered at no additional cost only to customers who pay the Amazon Prime membership fee for free shipping. That fee recently was raised to $99 per year.
 
The Amazon set-top box would compete with other, similar products on the market, specifically Apple's AppleTV, Google's (NASDAQ:GOOG) simple plug-in Chromecast gadget, and Roku's set-top box.
 
All of those devices allow people to easily and wirelessly stream content from the Web to their televisions. The content that users can stream depends on the services they subscribe to, and that the device supports. Google Chromecast, for example, supports Netflix (NASDAQ:NFLX) and HBO Go as well as its own YouTube and Google store selections. Apple draws from its Apple iTunes store, but can also be used with Netflix and other services.
 
For Amazon, the move potentially offers a new source of revenue, selling commercial minutes on the programming it streams.
 
Not that Amazon is a stranger to the advertising business. Its global advertising revenue topped $600 million in 2012, according to industry publication AdAge.com. The ads are displayed with product search results on all Amazon-owned sites.
 
As always, the devil is in the details. Just what kind of programming will Amazon be able to offer free?
 
Certainly, the programming it is now producing in-house would be included. That won't do it alone. Amazon is pouring about $1 billion per year into original programming without coming up with a bona fide hit. Presumably, the programming offered free with Amazon Prime would also be there.
 
But recent hit movies and current hit series? Maybe not. All of the streaming-video services hit a wall of industry opposition when they want to include the most valuable Hollywood programming  at no additional cost to their subscribers.

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No positions in stocks mentioned.
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