Paying in multiple installments is most often associated with products sold on infomercials or home shopping channels. Amazon (NASDAQ:AMZN) has taken a page from a book usually reserved for products like the NuWave Oven or the Little Giant Ladder and begun offering its new Fire TV set-top box for five (presumably easy) payments of $19.80 plus tax.
The financing is being offered without interest and with no credit check. The only catch is that customers must have had an active Amazon for at least two years associated with a valid credit card. There is a limit of one device for customer.
The move copies a similar promotion Amazon ran for its high-end Kindle Fire HDX tablet that let people pay in quarterly installments.
Amazon has every incentive to make it as easy as possible for its customer base to buy Fire TV -- the device not only makes it very easy to buy television and film content through Amazon, it also makes it incredibly simple to use the company's Amazon Prime Video streaming video service. If a customer has a Fire TV but does not pay for Prime, he or she will constantly see the free video opportunities he or she is missing by not spending $99 on the service (which also includes free two-day shipping on millions of items). Every Fire TV Amazon sells represents an opportunity to make more money off its customer base.
The company is risking little with the offer -- if a customer stops paying Amazon could kick their device off the network, making it so they can't stream any more content.
The installment plan may be a shot at Google, Roku
Two of the main competitors for Fire are Google's (NASDAQ:GOOG) $35 Chromecast and Roku's Streaming Stick, which costs $49.99. Neither device offers as much as Fire TV (which also serves as a sort of console-lite game platform), but both are very budget-friendly. Offering Fire on an installment basis might be enough to sway an Amazon loyalist who wants a Fire but is tempted to go with a less expensive choice.
Fire helps Amazon make money lots of ways
Amazon -- like Roku, Google, Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Sony (NYSE: SNE), and others trying to gain control of the living room, it's not about selling the device it's about what customers buy with it later on. With Fire, Amazon can make money selling content like movies and television shows, as well as by selling apps and subscriptions to paid content services like WWE's Network (which is not yet on Fire TV but has been announced as coming to the device soon).
If you order a Fire TV from Amazon for yourself it comes pre-installed with your Amazon account information. There is no setup. It knows who you are and already has your credit card info (though a password has to be entered to make purchases). Amazon has streamlined the buying process so renting a movie or even buying one does not feel any different from watching free content. Much like the way Starbucks (NASDAQ: SBUX) has made paying with its app feel oddly like you're not really spending money, Amazon has made its checkout system so easy that once a customer has a Fire the amount he or she will spend with Amazon should increase.
According to numbers released by The Digital Entertainment Group, a consortium of Hollywood studios and electronics makers, in January digital sales of movies and TV shows rose 47% to $1.2 billion, while subscription streaming spending rose 32% to $3.2 billion. The overall rental market, however, was $18.2 billion in 2013 and those dollars are likely to become mostly digital going forward.
This is a big market that will get bigger and Amazon needs to do whatever it can to stake out its turf.
Nearly two-thirds (62%) of TV content viewers now either own a Smart TV or can stream content to their TV through another device, Horowitz Associates reported in its annual State of Cable & Digital Media study. While some of those people will switch devices, many will remain loyal or simply not want to have to deal with the plugs and wires associated with changing streaming devices. Amazon needs to get Fire TV in living rooms of as many customers as possible or it risks being shut out of a lucrative marketplace.
The installment offer comes with almost no risk and it should bring Fire TV more users (albeit users who want to spread a $99 expense over five months). It's also a tactic that Amazon can use that its rivals can't employ as easily because the company already has a sales relationship with its customers. It's unlikely the installment offer results in a huge increase in Fire TV sales. But with so many companies trying to take over living rooms every little bit helps, and there is no reason for Amazon not to try creative sales ideas ... even if those ideas are more commonly associated with the Ronco Showtime Standard Rotisserie chicken cooker.
Your cable company is scared, but you can get rich
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Daniel Kline is long Microsoft. His living room TV is hooked up to Fire TV. He also own a Chromecast and a Roku player. The Motley Fool recommends Amazon.com, Apple, Google (C shares), and Starbucks. The Motley Fool owns shares of Amazon.com, Apple, Google (C shares), Microsoft, and Starbucks. 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.