AMC, CKEC, CNK, NFLX, RGC: Amazon introduces Fire TV ...

Amazon (AMZN) introduced its new product, Amazon Fire TV, which we view as potentially negative for Netflix (NFLX).  Fire TV provides access to other streaming content providers such as NFLX and Hulu, in addition to its own content library and video games.  Fire TV comes with hardware that acts like a set-top-box (STB) but is much smaller and cheaper, a one-time payment of $99.00.  No monthly subscription is needed.  It has some features which it hopes will attract consumers.  They include voice search (basically telling your TV or Fire TV what you would like to watch), parental control, and access to personal photos and videos if they are stored on Amazon's cloud.  

Let's focus on Fire TV going head-to-head against NFLX, even though it provides access to NFLX's service.  Both NFLX and AMZN likely have many of the same titles, so Fire TV could push NFLX to be even more aggressive in co-producing original content in order to differentiate itself from Fire TV and justify the monthly subscription model.  NFLX already charges very low for streaming, and knowing the negative reaction it will get from the Street, we don't think it can lower its price further.  We think NFLX will have basically two options: 1) spend more on bringing in original content; and/or 2) be willing to pay much more for exclusive OTT distribution rights to popular content.  None of these will help its margins.  This could force NFLX to once again rely more on 'long-tail' content, which was the Company's strategy about 10 years ago.  However, things are a bit different these days as although there is more 'indie' and 'long-tail' content available, there are also many more OTT distributors.  By the way, AMZN also has some original programming.  Simply put, although users of Amazon Fire TV will have access to NFLX, Fire TV may eventually hurt NFLX.  As everyone knows, AMZN will throw money at this product/service, hoping it will squeeze competitors' margins.

Fire TV could also impact cable and satellite service providers' video-on-demand (VOD) services negatively, as it is also pretty much a VOD, except delivered via streaming onto the TV.  In the long-run, cable companies (especially the ones that do not yet have their own content) will likely approach AMZN with an attractive streaming deal as they provide Internet access to millions of homes.  That is when we think AMZN will begin to slowly do away with its $99 hardware, unless features such as voice search become just too widely accepted by users.

Ad revenues and their potential ROI is what we think will differentiate AMZN's offering.  AMZN is the master in the retail space.  It sells everything to anyone anywhere.  We think the one-click shopping idea that many cable operators were trying to make go mainstream in the early 2000's by investing millions into those 'interactive TV' (ITV) set-top boxes and software/applications (remember OpenTV?) might actually become mainstream over time; but this time thanks to AMZN.  We actually tweeted about this last week.  

AMZN will not only have access to households' viewing habits but also their shopping tendencies.  It can use this information and work with advertisers to enable the one-click shopping, possibly increasing ad ROIs, and convincing advertisers to pay more, or convincing product suppliers to charge less.  

In terms of how Fire TV may affect movie theatres, we do not think it will have much of an effect.  This home entertainment space that AMZN is tapping into is already crowded, and as we explained in our movie-theatre post, theatre companies already have taken steps to offset declining attendance.  In addition, they still have the theatre release window advantage.  While studios and distributors may narrow the theatre release window a bit further, we don't think they will go too far in fear of cannibalizing box-office receipts.