Just after we went to press last week, it came out that Amazon in the US is showing a new Video on Demand service to selected users. No matter where we have looked there are no service or technology details, and we go back to a rumor we picked up in early June that this was about to happen, as its first mention.
The news itself is relatively exciting despite the lack of detail. Somehow or other 40,000 pieces of video are available for streaming, mostly to a PC, but through a deal with Sony, also to Sony Bravia TV sets where they come with the $300 Bravia Internet Video Link device.
Again there are no details of how the user navigates the service, selects a film and initiates and pays for a download, but let’s presume that side of it works and is not clumsy, then we have to assess if Amazon is onto a winner and if this will knock holes in existing online video efforts out there such as iTunes and Netflix?
We can see how the Sony Bravia deal came about, Amazon asked for permission to include Sony Pictures material and with an awareness that continues to surprise us, Sony Pictures asked for something that would help Sony Electronics ‘ a link to the Bravia. Sony has a long term history of operating as 6 separate fiefdoms and all evidence of them beginning to act together continues to amaze and impress us and point to the potential upsides for the company that have always been there, but which have been impossible to unleash under previous management.
And if that’s the case why would the Sony connection stop there. Surely if Amazon VoD can connect to the Bravia, then it can just as easily connect to the PlayStation 3. In Europe Sony is about to deliver an application that allows the PS3 to be used as a DVR (announced earlier this year) and a combination of streaming videos (under DRM) which you can save to the PS3 will prove irresistible. We know that Sony plans to do this all on its own, via the PS3 network, but why not also offer the same capabilities with the Amazon VoD service.
So far Amazon is supposed to have all the major US studios and broadcasters onboard, except Disney and its subsidiary ABC. Given that Apple’s Steve Jobs is on the Board at Disney and is the largest individual shareholder there, his reluctance to support a major rival is understandable, but don’t imagine for a second that he would or could keep Disney away if the Amazon operation was a huge success.
The key difference in this new Amazon service is that it will become a natural replacement or partner service to Amazon Unbox, which offers much the same, but as video downloads, where you have to wait until the file has finished downloading before you play it. Online video isn’t intrinsically difficult if you have the bandwidth, server power and technology to deliver it, and Amazon not only has all this, but has it in multiple countries. Naturally licensing issues make a service like this tough to launch all over the world but once again Amazon has the people to deal with licensing issues in the same way as Apple, and very few other companies, have.
When we first heard about this service we bet that Amazon would use Microsoft technology for this, Silverlight and PlayReady because it has worked that way in the past, on the other hand it may decide to also support the now dominant Adobe Flash Video and the new Adobe Media Player, we’ll have to wait and see, but that would duplicate both the encoding and the storage of the video. All we do know is that instead of using the Unbox download manager, the new service requires a simple browser plug-in.
By going down the streaming route, Amazon will also be competing with content owners and broadcasters directly, such as Hulu, and the new Time Warner service just announced for streaming ad supported TV series, and companies such as NetFlix, which offers free streaming as a bonus to existing online DVD rental subscribers.
The Amazon VoD service will let users buy a TV show or movie without actually downloading the video file to the PC’s hard drive. Amazon will then store each customer’s selection in what it calls ‘Your Video Library.’ Customers can then watch that show or movie whenever they return to Amazon, even if it is from a different computer or device, an approach which neatly gets around studio concerns about piracy. This allows the use case of buying a movie on your phone, or from your work PC for later viewing it at home, on a faster broadband line.
The Netflix share price fell 4% on the news of the Amazon service, while the Blockbuster, with a share price already in the basement and a corporate value of just $510 million, failed to flicker, despite the fact that if successful, this online video service would eat straight into both of their revenues.
But in the end Netflix gives its service away, to loyal DVD customers, and Blockbuster runs DVD and online side by side also. We suspect that the likely level of success, initially at least, for the Amazon service will have a negligible effect on both these companies’ revenues for the near future.
Success for Amazon here is to get more people to take the service than Unbox, but it has never released Unbox figures to date and we suspect that they are rather low compared to other Amazon numbers.
We have expressed the view in the past that for success, movies need to be $7 to $10 for a first early viewing, like at the cinema, and then later a file should be purchasable for the same prices as a DVD minus the cost of burning it, say $12 or so. A pay per view should emulate a DVD rental at between $2 and $3 depending on how old the movies are and so on, until some are free with adverts, just like repeats on the TV of old movies.
The Amazon VoD pricing will mirror Unbox, with titles priced at $1.99 per TV episode purchase, $3.99 for most movie rentals and from $7.99 to $14.99 for most film purchases so it comes roughly in line with our view, perhaps a little high, but who says it can’t come down in the long term and become quite successful.