Amazon (NASDAQ:AMZN) has been quietly beefing up its resources in the gaming space, adding high-level talent, and slowly rolling out new games, including Sev Zero, a third-person shooter game. The company also recently paid $970 million for Twitch, a gameplay video-streaming site, which, in July, had over 55 million unique visitors who viewed more than 15 billion minutes of content produced by more than 1 million broadcasters.
The Twitch deal, which allows the company to compete with Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube, seems like as close to a sure thing as is possible in a major technology acquisition. The company's efforts to become a game publisher appears to be a much riskier strategy.
Rather than building inexpensive apps or games designed to go viral like Angry Birds, Words With Friends, or Flappy Bird, or creating AAA big budget titles to match console exclusives including Electronic Arts' (NASDAQ:EA) Titanfall or Activision Blizzard's (NASDAQ:ATVI) Destiny, the company plans to make medium-budget games. That's a curious strategy, which, while it plays into the capabilities of the company's Fire TV set-top console, seems likely to fail.
What is Amazon doing?
Amazon Game Studios Vice President Mike Frazzini said the company plans to walk a middle path between hard-core games, which require huge budgets and massive resources, and much lower-cost social games, GeekWire reported.
He spoke on the topic at the recent GamesBeat conference in San Francisco:
What we've observed is that there's a type of game that exists in the middle of that spectrum that basically indexes very high on creativity (and) hand-craftsmanship. You can tell that the people who worked on it had a lot of autonomy, had the ability to shape the game the way they want to shape it, and so when we tell that story to these fantastic game developers that have worked on some of the biggest franchises ever made, they're very compelled by that.
Giving smart people medium-sized or smaller budgets along with creative freedom is the same strategy Amazon has used in its creation of original video for its Prime Video service. It hasn't worked there, nor is it likely to work with games.
Either go for it, or go entreprenurial
Amazon has created a number of original television-style programs working with highly regarded creators. The company has given mid-sized budgets and creative freedom. None of them, including Alpha House from Garry Trudeau (who created the Doonesbury comic and the well-regarded HBO miniseries Tanner '88), have made much of a mark on the public.
The company currently has a number of pilots up on its website, including ones from big names such as Steven Soderbergh, indie film darling Whit Stillman, and teen star turned noted producer Shaun Cassidy, and they all have done little to create buzz.
That's fine as Amazon Prime Video is a free add-on service created to keep Amazon Prime members happy. Its shows don't need to succeed like Netflix's do, nor does it need the acclaim that fuels HBO's success. But, with the goal of Amazon's gaming studio being to build interest in Fire TV (as well as to a lesser extent Fire Phones and Kindle tablets), then middle-of-the-road, mildly compelling games from semi-big name creators won't work.
In the current gaming world, the two types of games Amazon is eschewing are the ones that suck up most of the gameplay audience. In the low-budget worlds, hits are harder to come by, but it costs much less to take a lot of swings. In the premium AAA title world, the risks are much higher, but the money involved ensures that a title will at least get exposed to the public.
Playing in the middle sort of combines the worst of both worlds -- you can't release enough titles that cost so little to make that an occasional hit covers the cost of many failures, nor do you have the "wow" factor that ensures sampling. Going middle of the road does match the impressive-for-the-size-of-the-console, but limited capabilities of Fire TV, but it does not match what the game-playing audience -- either the hard-core one or the causal players -- are looking for.
It's all about Fire TV
The problem in using the same strategy Amazon is employing with its video service is that original video is a pleasant add-on for Prime Video, which itself is a free add-on for customers who signed up to get free shipping. Releasing decent, but unspectacular games is unlikely to drive users to buy Fire TV -- or any other Amazon device. It's also not likely to lead to increased engagement on Twitch, which is largely devoted to top-tier titles.
Amazon may well create some excellent games that existing Fire TV and Kindle customers enjoy. Those games won't be good enough to spur sales of the set-top box, nor will they be cheap enough for that not to matter. Amazon would be better off either taking a risk on a few top-tier games -- the kinds of titles that make people buy consoles -- or taking a low-end entrepreneurial approach for volume.
By aiming for the middle, Amazon is likely to appeal to nobody.
Daniel Kline has no position in any stocks mentioned. He owns a Fire TV and likes it a lot but rarely uses it for games. The Motley Fool recommends Activision Blizzard, Amazon.com, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Activision Blizzard, Amazon.com, Google (A shares), Google (C shares), and Netflix. 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.