Amazon Readies to Take a Bite Out of Online Pay-TV Market?

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In yet another effort to move Amazon.com (NASDAQ:AMZN) from the computer room to the living room, the Wall St Journal reported Tuesday that the e-commerce giant has been courting several entertainment companies about the prospect of licensing their television channels for a new online pay-TV service. Amazon already offers its Prime customers the use of a Prime Instant Video service — a library of various TV shows and movies on demand for subscribers — but the company still has yet to secure a tie-up with media companies that would allow it to offer live TV channels like the ones currently available on cable or satellite TV.

It’s a hard market for Amazon to crack because the company already faces significant competition from rivals going for the same TV gold. Sony Corp. (NYSE:SNE), Google (NASDAQ:GOOG), and Intel (NASDAQ:INTC) are among the few which have worked to increase their presence in the pay-TV world, and media companies are still showing a reluctance to nail down any deals because they don’t want to risk harming incumbent pay-TV providers, which currently fuel the entertainment industry.

Nonetheless, according to the Journal, insider sources say that Amazon has approached at least three big media conglomerates seeking rights to distribute their channels online, and the company is also in the midst of developing a set-top box to stream video. The Seattle-based company has an advantage over its competitors thanks to a number of relationships it fosters with TV networks and studios, but those companies seeking to launch new services still have struggled to negotiate terms that allow them to price their services competitively, and Amazon may face the same fate.

There are certainly downsides to Amazon launching an online pay-TV service, as the Journal points out that it will likely translate to higher content-licensing costs for its streaming video business. However, some analysts have already identified other routes Amazon could take to make money off of its TV venture, and thus the higher costs could ultimately pay off.

In addition, if Amazon is truly interested in the pay-TV market, it also may be affected by the federal appeals court decision this month that may overrule “net neutrality” rules, allowing broadband providers to charge content companies fees for quality service over their networks. Netflix (NASDAQ:NFLX), Google (NASDAQ:GOOG), and now even Amazon may need to adjust their business models for their streaming video services following the court decision, and it could influence how Amazon forges forward with its TV service venture in the future.

The biggest news currently surrounding the pay-TV market is the newly minted deal secured between Intel and Verizon Communications (NYSE:VZ). Intel said Tuesday that it sold its Internet TV-related technology to Verizon for a dollar amount that was left undisclosed, and sources elucidate that that could allow Intel to offer its own online pay-TV service in the future. It is thus clear that the TV market is evolving quickly and tech giants are working to get their foot in their door while they can, and Amazon, Intel, Google, and Sony are now just a few of the rumored companies ready to start securing some deals before it’s too late.

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