For the second straight year, Amazon (NASDAQ:AMZN) has made a surprise announcement revealing new Alexa-powered devices. This year's crop includes a product that will catch the eye of investors following the cord-cutting space: the Fire TV Recast.
Amazon's new Fire TV device is not a streaming device per se. It's a DVR -- one designed specifically to work with over-the-air (OTA) TV. Amazon's OTA DVR can live anywhere in the house as long as it's attached to an antenna that gets TV reception. Owners can use their Fire TV streaming devices (sold separately, of course) to watch and record the Fire TV Recast-powered OTA TV over Wi-Fi.
Amazon isn't the first company to debut an OTA DVR, but the reveal is intriguing from an investing perspective.
Over-the-air TV and streaming: Allies or enemies?
Over-the-air TV has been around in some form or another since the beginning of television. To this day, it's possible for viewers in many areas of the country to drop their cable subscription and still broadcast (OTA) channels like ABC, CBS, Fox, NBC, PBS, and Univision, among others. And, aside from the one-time cost of buying a TV antenna, it's all free.
Amazon has poured billions of dollars into its streaming business, which includes the streaming video on demand (SVOD) service Amazon Prime Video as well as Amazon Channels, a subscription-hub service that offers streamers access to cord-cutting favorites like AT&T's HBO.
Free over-the-air TV and streaming video are two popular ways to get content without cable. As a company that will spend more than $5 billion this year on streaming content, it would make sense for Amazon to want cord cutters to focus on streaming options. Instead, Amazon is now betting that the two content options can work in harmony in a way that's profitable for Amazon.
How big is the OTA DVR market?
Amazon is not the first company to come up with the idea of an OTA DVR. TiVo has an OTA DVR product of its own, and Nuvyyo, the company behind the Tablo OTA DVR, focuses on nothing but such products. Users of OTA DVRs like Tablo can already use apps to stream their live and recorded TV content on streaming devices like Fire TV and Roku (NASDAQ:ROKU) devices.
These offerings are known, but not high-profile, perhaps because the market has been a small one. An estimated 15.4 people watch OTA TV. That's 12% of U.S. households. Those are not insignificant numbers, but they pale in comparison to streaming video's figures: a full 55% of U.S. households have at least one streaming subscription under their roof.
It's also worth noting that not all 15.4 million OTA viewers use OTA DVRs. It's difficult to find reliable numbers that are encouraging for OTA DVRs, but we know that about half of TV viewers -- including cable users -- have DVRs. And we also know that OTA is a popular choice for cord cutters looking for live content, such as NFL games, that Netflix and other on-demand services can't replace. The importance of this "DVR-proof" live content to OTA adopters suggests that DVR use among OTA viewers is unlikely to be higher than it is among TV viewers overall. Likely, the numbers are lower.
All of this may make investors wary of Amazon's new DVR offering. It seems like a potential flop, especially considering a price point -- $229.99 -- that is quite high relative to that of Amazon's other Fire TV-branded offerings.
That's a lot of money to ask of cord cutters, many of whom are choosing OTA in order to save money.
A cost-effective path to live TV
The Fire TV Recast isn't cheap for consumers. But if Amazon can get customers to bite, the Fire TV Recast could be very cost-effective in the long run -- for Amazon especially.
Amazon's race for streaming supremacy has involved plenty of bidding wars over live TV. Live TV is seen, rightly, as a way for streaming services to differentiate themselves. Amazon paid a reported $130 million for live streaming rights rights to the NFL's Thursday Night Football broadcasts. All of that for the Thursday games -- hardly the premiere NFL television product -- and Amazon's deal wasn't even an exclusive: the games are also being broadcast by 21st Century Fox (NASDAQ: FOXA) this season.
Incidentally, 21st Century Fox's flagship network, the eponymous Fox, is available for free over the air. So is CBS, which -- along with Fox -- airs games on Sunday afternoons. And so is NBC, the home of Sunday Night Football.
Amazon wants live content on its Fire TV devices, and it's willing to pay for it. But the free OTA availability of these hugely popular broadcasts works against Amazon's streaming ambitions. With the Fire TV Recast, Amazon has a chance to fix that.
Like some competitors, the Fire TV Recast allows viewers to stream live OTA TV as well as record it. That means users can access live OTA TV through the Fire TV streaming platform -- no need to switch their TV inputs around.
Suddenly, viewers can use the Fire TV platform to watch live NFL games not just on Thursday, but on Sunday, too. They can also watch their local news stations, major-network sitcoms, PBS documentaries, and a whole lot more -- all without Amazon having to spend a dime on new streaming rights deals.
And if any Amazon users don't know this already, Amazon can simply push their new product through ads on users' Fire TV streaming devices. That's because -- unlike its competitors -- Amazon has a vertical monopoly running through its streaming platform, streaming devices, and OTA DVR. Roku has no OTA DVR to advertise; Tablo has no streaming platform to advertise it on; but Amazon has both, and can hand itself the sort of free marketing that it might take to convert a few million existing OTA DVR viewers into tens of millions.
What to watch as an investor
Will this work? Fortunately, it will be easy to find out. If Amazon succeeds in winning over viewers to this new way to watch live TV on Fire TV devices, then we'll see the results in the Fire TV Recast sales numbers.
If Amazon can move the needle with streamers who were not previously aware of OTA options, keep an eye on companies like Nuyyo and TiVo. A rising tide could lift all boats, especially considering the fact that Roku -- not Amazon -- has the largest market share among streaming devices. The Fire TV Recast works only with Fire TV devices, at least for now. If Fire TV users flock to the Fire TV Recast, look for another OTA DVR to step in and fill that role for users of Roku devices and other streaming options.