Can Amazon Compete in This New Arena?

Amazon (NASDAQ:AMZN) is company that sells all manner of items — from jewelry to blenders to books — on its Internet marketplace; Amazon is a company that stores huge amounts of data for companies like Netflix (NASDAQ:NFLX); Amazon is a company that provides a vast selection of digital media through its Instant Prime Service; and last, but not least, Amazon is a company looking to expand its presence in the market Internet-connected devices.

The company has had one key technological success; before tablets swept the market, Amazon’s Kindle dominated what was then known as the e-reader category. It has been rumored to be developing a smartphone as well, but a television set-top box seems to be the next item on the agenda. As Bloomberg reported Wednesday, the box will plug into televisions and give users access to its expanding video offerings.

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As pay-television through traditional sources has become less popular due to the growing dominance of the Internet, several companies have already carved out their niches in this market. With Apple’s (NASDAQ:AAPL) Apple TV device and Roku — along with more versatile devices like Sony’s (NYSE:SNE) Playstation 3 and Microsoft’s (NASDAQ:MSFR) Xbox — already offering competition, Amazon will have to create its own appeal. Many other set-top devices, like the Playstation 3 and Apple TV, give their users access to Amazon’s video catalog as well as Netflix’s video-streaming platform, but by building its own system, Amazon can put its content directly in front of consumers and give developers another reason to create apps for its digital ecosystem…

Sources told Bloomberg the device is being developed by by Amazon’s Lab126 division in Cupertino, California, a unit that has experimented with building TV-connected devices for several years. The project is headed by Malachy Moynihan, a former vice president of emerging video products at Cisco (NASDAQ:CSCO) who spent nine years at Apple during the 1980s and 1990s.

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Like Netflix, Amazon has been expanding its video library with original programming. Studios have begun demanding more for their content in the past two years because they can shop their shows and movies around to competing providers, like Comcast’s (NASDAQ:CMCSA) Hulu, Redbox (NASDAQ:CSTR), and Netflix. As a result, in-house created content has become a more viable option. Amazon introduced 14 television pilots this week, which it financed, and viewer feedback will determine which shows will be developed into full series. However, the company has also paid to secure exclusive streaming rights to popular shows like Downtown Abbey.

The set-top box would allow Amazon to showcase its content by giving it to customers in the old-fashioned way, on their televisions. “It would certainly make some sense,” Jason Krikorian, a general partner at venture capital firm DCM, told Bloomberg. “They have a ton of content, an existing billing relationship with millions of users, an existing Android app marketplace that could be leveraged on the box, a reputation for solid hardware products, and a terrific channel through which to promote the product.”

One remaining question is whether Amazon will welcome competing video streaming services onto this device.

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