Why Amazon’s Fire TV Should Scare Sony, Nintendo, and Microsoft

Just because Amazon (AMZN -2.56%) isn't positioning its new set-top box as a game console doesn't mean it's not a threat to Microsoft's (MSFT -1.27%) Xbox One, Sony's PlayStation 4 (SNY 2.00%), and Nintendo's (NTDOY -1.16%) already struggling WiiU. 

The $99 device, which has an optional $39 game controller, is being pushed as a competitor to Roku, Apple (AAPL -1.22%) TV, and Google's (GOOG -1.10%) Chromecast first and foremost, but gaming is part of the package.

Amazon is clearly positioning the device as a video player first, describing it as "the easiest way to enjoy Netflix, Prime Instant Video, Hulu Plus, WatchESPN, low-cost video rentals, and more," in a letter from CEO Jeff Bezon on its home page Thursday.

But while delivering video seems like the prime reason behind the launch, Bezos could not help but gush about the games that will be offered on the platform. "As a bonus, we also added games. With Fire TV you can play blockbuster titles like Minecraft, The Walking Dead, Monsters University, the Amazon exclusive Sev Zero, plus great free games. There are over a hundred titles to explore, with thousands more coming soon. These games are a great value — the average price of paid games is only $1.85."

Fire TV offers access to all the major video apps like its set-top box competitors do, and it offers them along with an impressive selection of popular games like the consoles do. That may not make it a clear alternative to a $35 Chromecast and some low-end Roku models, but the Fire already offers a better deal than Apple TV. On the console side Fire may lack the high-end games like the just-released Titanfall, but at $139 for the Fire plus the game controller it's a sensible choice for a family looking for a multi-purpose device at a low cost (and the cheap games help too).

Xbox One and PS 4 are at the beginning of their life cycles and while customers are not likely to replace a just-purchased high-end console with a cheaper device, it's easy to imagine parents letting Amazon control their living room and foregoing the more expensive consoles.

Amazon insists it isn't a console

While Bezos was touting the gaming benefits of the Fire, Amazon Vice President Pete Larsen was insisting to Engadget that Fire TV "isn't trying to be a game console."

In the strictest sense it may not be. While the device has impressive specs for a set-top box --  a quad-core processor, dedicated GPU, 2 GB of memory, dual-band, dual-antenna Wi-Fi, high definition 1080p video, and Dolby Digital Plus surround sound -- it's not as powerful as an Xbox One or a PS 4. That might keep hardcore gamers on the consoles, but it's not likely to be a major deterrent for the younger generation, which has grown up playing simpler games like Minecraft and Angry Birds on their tablets and phones.

With Fire TV Amazon not only brings those games to the television screen, it's looking to grow its own category of game specifically for Fire TV. The company has been mass hiring veteran game developers, according to Engadget, and bought the game studio Double Helix. 

"We're taking this very seriously; we're committed; and we're making big investments," Mike Frazzini, who is leading the games team for Amazon, told Engadget..

Amazon builds new categories

When it launched the Kindle Fire Tablet Amazon effectively created a market for lower-priced high-function tablets. The Fire tablet isn't as good as an iPad but it's pretty good for a much lower price, which likely brought people into the tablet market who otherwise would not have jumped in. The Fire TV has a chance to do the same for the console market, winning Amazon not only customers looking to stream video but ones looking to play games as well. That's potentially huge because, as you can see in the chart below (from Gartner) while the mobile games market is growing, the most dollars are still spent on console games.

Video Game Market Revenue, Worldwide, 2012-2015 (millions of dollars)

Fire TV gives Amazon the only viable option for playing mobile games on a television and it should let the company steal away some of the console audience.

Amazon could win big here

Fire TV gives parents a way to tell their kids no when it comes to buying a $399 PS 4 or a $499 Xbox One. The gulf in price between the true consoles and Amazon's not-really a-console is so huge that it's not like Sony or Microsoft can compete with a simple price cut. The battle being waged between all the companies mentioned here is to control people's living room. 

The gaming consoles will have an audience among people into the most complicated games that require the processing power of an Xbox One or a PS 4, but most folks just want a device that's fun. If Fire TV has good games that are entertaining, that'll be good enough for a lot of people. Not every hit game needs to cost $200 million to develop as the recent Flappy Bird sensation definitively proved. Playing a game on your phone is not as impressive as playing even the crummiest game on a high-end console, but that doesn't matter if the phone game entertains you. 

Amazon has a chance to be the good-enough console option for millions of households -- much like Nintendo's original Wii was during the last console generation. Fire TV may not replace the high-end consoles but it should steal some market share while also bringing new customers to TV-based gaming who never would have spent the money for an Xbox One, a PS 4, or even a WiiU.