What Is Fire TV? A New Way for Amazon (Nasdaq: AMZN) to Sell You Stuff

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The new Fire TV from Amazon.com Inc. (Nasdaq: AMZN) may be a new product, but it's a familiar strategy.

Amazon Fire TVAmazon unveiled the $99 set-top box Wednesday, emphasizing its robust hardware specifications, its voice-controlled interface, its ability to play games, and an array of content that includes Hulu, Netflix, Bloomberg TV and Major League Baseball.

And while all of those features will increase the appeal of the Amazon Fire TV to consumers, the main reason the king of online retailing made this product is to create yet another avenue for selling content.

And you'd better believe it will be brain-dead simple to rent or buy from Amazon's considerable trove of video and music content.

In that sense, the Amazon Fire TV serves much the same purpose as the Amazon Kindle Fire tablet, but extends the company's reach to the consumer's living room.

"Amazon has a vested interest in making sure it is present at every moment of possible consumption, which is all the time," James McQuivey, an analyst with Forrester Research, told The New York Times. "It wants to get into that television screen and start to build a relationship."

Establishing a foothold in the living room is every big tech company's goal, and for one very good reason. Even in 2014, with multiple entertainment options, the average adult American still spends about five hours a day watching television.

And whoever owns the box that's streaming much - if not all - of that content will seize the high ground in a very lucrative chunk of the consumer economy.

"Streaming is the long-term future of video," William V. Power, an analyst for Robert W. Baird & Company told The New York Times. "Amazon needs to capitalize on that. The prize is controlling much of the living room and a big piece of the economy."

Amazon Fire TV Will Use Kindle Model

Because the Amazon Fire TV is new, we don't know if it will actually be a "loss leader" - a product that's sold at a loss but brings in profit in other ways. But we do know that has been the case with the Kindle Fire.

The Kindle Fire, which debuted in 2011, has captured just 4.8% of the global tablet market. But that's been enough.

According to a Morgan Stanley study last year, the Kindle ecosystem accounts for 11% of Amazon's revenue and a startling 23% of its operating profit. The tablet also helps fuel growth in the Amazon Appstore as well as subscriptions to the $99-a-year Amazon Prime service.

The Amazon Fire TV could conceivably contribute even more to the company's earnings.
Carrots to subscribe to Amazon Prime include such things as access to features like Amazon Prime Instant video. And those who subscribe to Amazon's Cloud Drive will be able to view their photos on their TV.

The gaming component of the Amazon Fire TV should also produce a tidy revenue stream. Right now most of the games are adaptations from the mobile versions, but Amazon recently bought a game studio, Double Helix, to develop games customized for the Fire TV.

As for the Fire TV's competition - it really doesn't matter.

Right now, Apple Inc.'s (Nasdaq: AAPL) Apple TV, Roku Inc., and Google Inc.'s (Nasdaq: GOOG) Chromecast are fighting to be the video streaming device of choice. Apple has the most competitive ecosystem, Roku the most content, and Chromecast, at $30, is the least expensive.

But, as with the Kindle Fire, Amazon just needs to establish itself in the market with the Fire TV. Even a 5% share of the market would have an impact, and the Fire TV is likely to get much more than that.

That probably explains Amazon's relaxed attitude towards its rivals.

"We don't go at it from the perspective of who you're going to compete against," Dave Limp, vice president of devices at Amazon, told The New York Times. "We don't think of this as a sporting event where there has to be one winner."

Are you impressed by the Amazon Fire TV? Do you think it's a smart strategic move? Tell us on Twitter @moneymorning or Facebook.

Meanwhile, Apple is cooking up a splashy upgrade to its Apple TV device. The company has lately gotten much more serious about pursuing this market. Here's why the next version of Apple TV will be a big deal...

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