Will Amazon's Fire TV Disrupt the Console Gaming Industry?

Amazon's recently-released set-top box features substantial gaming capabilities. What does this mean for Sony, Microsoft, and Nintendo?

Apr 8, 2014 at 4:05PM

The Amazon (NASDAQ:AMZN) Fire TV is the latest mainstream tech product with a credible chance of disrupting the increasingly crowded gaming space. The set-top box was announced and released at the beginning of April with an MSRP of $99 for the main unit and $39.99 for its gaming controller. The device represents Amazon's first tangible commercial step into claiming a portion of the gaming market, but the online retail and cloud giant has taken steps to ensure that the Fire TV is not viewed as a "console." How much of a threat does the new device pose to the respective gaming empires of Sony (NYSE:SNE), Microsoft (NASDAQ:MSFT), and Nintendo (NASDAQOTH:NTDOY)?

Are 'non-consoles' the future of gaming?
Rumors that Amazon would enter the console gaming space were persistent throughout the year leading up to Fire TV's release, but the actual product is less focused on gaming than the rumors have suggested. Upon officially revealing the Fire TV, Kindle VP Pete Larsen decreed that the device was definitely not a gaming console. The Fire TV has primarily been positioned as a streaming device competitive with the likes of Apple TV, Google Chromecast, and Roku, but Amazon's roundabout entrance into gaming can be taken as a sign of things to come.

Dedicated gaming is headed for a contraction
Despite strong launches for the PlayStation 4 and the Xbox One, the future of the dedicated console gaming space remains very much in doubt. The failure of Nintendo's Wii U console all but guarantees that the market will contract in this hardware cycle, and developers are increasingly moving resources to mobile and PC platforms.

The majority of the Japanese gaming industry appears to have abandoned the triple-A console games market, and rising development costs mean that there are fewer big games in development for the new systems than there were for their predecessors. Due to the need to reach as large of an audience as possible, many of the big games that will hit the Xbox One and PlayStation 4 in 2014 will also be available on the Xbox 360 and the PlayStation 3. The new consoles from Sony and Microsoft have yet to offer much outside of marginally improved visuals, and Nintendo has never looked weaker on the console front. The traditional console gaming space is ripe for disruption.

Everyone is getting in the game
Amazon's statement that the FireTV is not a gaming console is indicative of the direction in which gaming is heading. In fact, the messaging for the product bears certain similarities to that of the Xbox One upon its initial unveiling. Microsoft positioned its latest console as an all-in-one multimedia box that would have a heavy focus on television integration and original interactive programming.

The greater success of Sony's more gaming-centric PlayStation 4 pushed Microsoft to alter the presentation of its Xbox One messaging, but consoles have expanded to become multimedia devices. Alternatively, phones, smart televisions, and video streaming devices are becoming increasingly capable when it comes to gaming. As a greater number of platforms emerge for consumers to get their gaming fix on, dedicated consoles will have to offer increasingly impressive and differentiated experiences to justify their existence.

Amazon targets the casual audience
The casual gaming market that exploded in the last console cycle and drove Nintendo's Wii to a staggering 100 million unit installed base is now largely served by offerings on mobile platforms. A $99 set-top box with basic gaming features from Amazon (or its immediate competitors) has the bells and whistles necessary to provide a basic gaming experience and court consumers away from dedicated console offerings.

With an average price for paid games of $1.85, the Fire TV offers an attractive and affordable entry point into gaming without the need to purchase dedicated hardware. Of the big three console platform holders, the rise of set-top gaming poses the greatest threat to Nintendo, while Sony and Microsoft have greater cache with the hardcore audience. They have also invested more in the hardware and network capabilities necessary to provide a more distinguished, high-end experience. Still, neither console manufacturer is immune to the inevitable rise of devices like the Fire TV.

The beginnings of a transition
Amazon's gaming-enabled set-top box isn't going to revolutionize the industry overnight. The device will likely wind up being little more than a footnote in a broader transition, but the company has shown that it's serious about building infrastructure and playing a larger role in games going forward. With Amazon, Apple, and Google looking to be increasingly influential in shaping the industry, Sony, Microsoft, and Nintendo face added pressure to convince consumers that their respective platforms are essential.

More disruption: Your cable company is dying, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and 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.

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