Amazon.com (NASDAQ:AMZN) had big dreams for the small screen, and Amazon stock could benefit from the leading online retailer's primetime ambitions.

Sources are telling Bloomberg, The Wall Street Journal, and anyone within news-breaking distance that Amazon is working on a set-top box that would deliver the company's digital video services as well as other offerings. The new box -- Kindle TV, as some are starting to call it -- makes sense. Apple (NASDAQ:AAPL) has had a Web-tethered set-top device on the market for years, and even though Apple TV hasn't become as popular as the iPod, iPhone, or iPad, it certainly helps keep customers close to its ecosystem of digital video content. 

The challenge for Amazon here will be how to stand out in what is becoming a very crowded space. 

Amazon's strategy in the past has been to sacrifice margins on the hardware, knowing that it can make up sales of Kindle e-readers and Fire tablets through eventual content purchases. However, market leader Roku is already pretty darn cheap. Entry-level Roku players can be had for less than $50 through Amazon. Even the high-end Roku players with 1080p HD and Apple's latest set-top box can be had for less than $100.

The market's also going to get a lot busier in the coming months.

Intel (NASDAQ:INTC) became a surprise entry earlier this year when it revealed that it will roll out a set-top box and a Web-based television service that will distribute live TV, streams of earlier episodes, and other online services. There's no pricing with that, but Intel won't have a problem taking a hit on the hardware if the endgame here is to push its online television platform.

Then we have the installed user base. Video game consoles have become Swiss Army knives. They don't just play games anymore. 

Microsoft (NASDAQ:MSFT) Xbox is now an entertainment hub. There are 46 million Xbox Live subscribers, and the average user isn't just playing games when it comes to the 87 hours a month spent interacting with the console. It's not a coincidence that Netflix (NASDAQ:NFLX) turned to Microsoft shortly after it hooked up with Roku to put out the first Roku set-top box, making sure that Xbox gamers could stream Netflix's service through their console. Netflix realized early on that you need to find your way into the living room and bedroom to make a difference with online video.

Amazon stock doesn't necessarily need a boost. It's one of the few tech bellwethers trading near an all-time high. However, there's clearly potential here if Amazon is able to bring something new to the table. It can't be merely access to its growing digital library, because mobile apps, smart televisions, consoles, DVRs, and other set-top boxes already do that. However, Amazon clearly knows that. It wouldn't be exploring this as a new market if it didn't have an idea that would raise the bar.

Let's see what you've got, Amazon. We all want to be entertained.

 

Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com, Apple, Intel, and Netflix. It also owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.