By now, you've heard that Amazon.com (NASDAQ:AMZN) has officially launched its own set-top box that lets users stream digital video and audio content to their televisions. Priced at $99 a pop, the Amazon Fire TV costs the same as Apple's (NASDAQ:AAPL) rival streaming gadget. Yet it is more expensive than other competing devices including Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) $35 Chromecast and Roku's $50 dongle.
This product launch is exciting for Amazon. However, the e-commerce giant's new hardware is only half of the equation. For investors, the real story is how Amazon's media ecosystem and user base measure up to that of deep-pocketed rivals like Apple and Google.
A crowded market
Amazon has built a vast library of digital media and apps that now includes thousands of movies and TV shows, millions of songs, and over a hundred games. Until now, Amazon's Kindle tablets were the main point-of-sale devices that people used to consume this content. Today, if you purchase a Kindle or Fire TV, for example, you're buying into the complete Amazon ecosystem of digital media. The same goes for Apple's devices and its iTunes media library, as well as Google's Chromecast dongle and Google Play.
Video streaming is now the fastest-growing component of these competing ecosystems. Moreover, it is quickly replacing DVDs as more people choose to stream movies and TV episodes from tablet and smartphone devices. Apple TV currently dominates the U.S. streaming device market with 43% market share, while Google Chromecast grabbed 14% of the market after its debut less than a year ago, according to research from BI Intelligence. It will be interesting to see where Amazon's new Fire TV falls into the mix, once it's been on the market for a bit.
For now, Apple TV has a greater breadth of first-party content than its rivals. Apple TV is also available in more markets around the world than Google Play or Amazon Instant Video. In fact, Apple's media business is estimated to be an $8.5 billion empire, or bigger than The New York Times, Time Inc., and Warner Bros. combined, according to VisionMobile. However, Amazon is hoping to differentiate its ecosystem from competitors' by making a big bet on original content.
One-of-a-kind content is king
Offering exclusive TV and movie titles and introducing original content is one way Amazon could beat Apple at its own game. After all, with so much competition in the space, having a vast assortment of media in one's ecosystem is no longer enough. Apple TV, Chromecast, and Fire TV all offer content from various third-party providers like Netflix (NASDAQ:NFLX), Hulu Plus, Crackle, and YouTube. However, unlike Amazon, Apple and Google aren't producing original content.
Amazon is taking a page out of Netflix's playbook by investing in original content and buying exclusive rights to popular network shows like the Fox hit series 24. Netflix added 2.3 million U.S. subscribers in the fourth quarter thanks to the wild popularity of its original content lineup, which includes shows like House of Cards and Orange Is the New Black.
Of course, original series like these cost far more to produce than simply licensing content from third-party providers. For example, 26 episodes of its House of Cards series cost Netflix $100 million to produce. Similar to Netflix, Amazon is also heavily investing in original content these days in hopes of attracting new subscribers to its Prime membership program -- analysts estimate that Amazon Prime now has more than 25 million paying subscribers.
For just $99 a year, Prime members get unlimited streaming access to more than 40,000 movies and TV shows including Amazon original series like Alpha House. Amazon Studios plans to introduce 10 more original shows this year, including Transparent and The After, which will be available exclusively on Amazon Prime Instant Video. While expensive, original content could give Amazon's media ecosystem an edge over Apple's and Google's respective networks.
Video streaming services are just one part of the growing media ecosystems for Amazon, Apple, and Google -- albeit an important part. Ultimately, each of these companies' ecosystems has strengths and weaknesses. However, I suspect original content and exclusive digital media rights will be what set these tech giants' networks apart in the future.