Amazon Launches Fire TV: Does Netflix Need to Worry?

The new Fire TV from Amazon looks like a competitive product in the set-top box market' however, that does not make it much of a threat for Netflix.

Andrés Cardenal
Andrés Cardenal
Apr 3, 2014 at 10:27PM
Consumer Goods

Source: Amazon

Amazon (NASDAQ:AMZN) launched its new Fire TV set-top box on Wednesday, and the product looks like a competitive alternative when compared to other products in the market, such as Apple (NASDAQ:AAPL) TV, Google (NASDAQ:GOOG) Chromecast, and Roku. Does Netflix (NASDAQ:NFLX) need to worry about Fire TV?

A product to watch
Fire TV will sell for a price of $99; this is the exact same price as Apple TV and Roku 3, although Google Chromecast is considerably cheaper at $35. Fire TV streams video from a wide variety of sources: Netflix, Hulu, and Amazon Instant Video, among many others. On the other hand, it does not include HBO GO, which could be an important omission for many users.

Technical specifications are quite strong in comparison to the competition. For example, Fire TV has 2GB of RAM, while Roku 3, Apple TV, and Google Chromecast all offer 512 MB in memory.

Source: Amazon

Fire TV has other differentiating factors such as Advanced Streaming and Prediction -- ASAP -- technology, which is designed to anticipate what users will watch next in order to cue the videos ready in advance and substantially reduce loading time.

Amazon´s new device can also be controlled by voice, according to Amazon: "Voice search that actually works." The remote control does not require line of sight because it's equipped with Bluetooth. This is available in Roku, but not in Apple TV or Google Chromecast.

Gaming could be another positive factor for Fire TV. Amazon´s set-top box includes hundreds of games from popular producers such as Mojang, EA, Disney, and Ubisoft, among others. There is also a game controller that sells separately for $39.99.

It´s hard to tell to what degree gaming could be a relevant decision factor for consumers when it comes to set-top boxes. Those who are seriously interested in gaming most likely already own a gaming console; but Amazon has included original games in the Fire TV, so it could offer some differentiation. In any case, it certainly will not hurt.

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While Roku offers a smaller selection of games than Fire TV, Apple TV and Google Chromecast don´t include any games.

All in all, not including HBO GO is probably its biggest disadvantage, but Fire TV offers a solid alternative in comparison to the competition. Powerful specifications and multiple differentiating factors for a competitive price mean than Amazon´s new product stands a decent chance of making considerable inroads in the market.

Does Netflix need to worry?
Amazon is not probably planning to make a lot of money on hardware sales with this recent move; the company is clearly intending to consolidate its Prime ecosystem, while gaining some ground in the battle for the living room .

Amazon Prime provides free two-day shipping, access to the Kindle Owners' Lending Library, including more than 500,000 Kindle titles, and more than 40,000 movies and TV episodes freely available for streaming via its Prime Instant online video.

Fire TV could fit naturally well into this ecosystem, and it could also provide some leverage for Amazon in the battle against Netflix when it comes to streaming.

Source: Netflix

On the other hand, Netflix has proven its ability to successfully compete against Amazon over the years, and the company seems to be clearly moving past the inflection point when it comes to building a sustainable competitive position and differentiating itself versus other industry players.

Netflix added 2.33 million members in the U.S. and 1.74 million international subscribers during the fourth quarter of 2013, ending the year with 33.42 million domestic and 10.93 million international subscribers, for a total of 44.3 million members as of the end of the last year.

The company is not only generating healthy growth rates, but expansion is even gaining momentum in the U.S. Netflix added 14% more subscribers in the fourth quarter of 2013 than in the same period of the prior year. Successful original productions like House of Cards have been a huge source of competitive differentiation for Netflix lately, and demand is as strong as ever.

Amazon is always a risk to watch. However, as long as Netflix continues delivering valuable content and a high-quality service for a convenient price, the online streaming market will likely offer enough room for both Netflix and Amazon to continue growing over time.

Bottom line
Amazon´s new set-top box looks like a competitive alternative versus players such as Apple TV, Google Chromecast, and Roku. However, even if it could consolidate Amazon´s Prime ecosystem, there is no reason for Netflix investors to be too concerned about Fire TV. Netflix has built a solid competitive position, and the company continues gaining subscribers at full speed. Fire TV will hardly change that.