No longer just a retailer, giant faces rivals in entertainment space

Remember when Amazon.com was just an online bookstore?

As the Internet has evolved, Jeff Bezos and company have transformed with it. And while the site is certainly a retail powerhouse and dominates the publishing (and ePublishing) industry, Amazon has become a company with deep interests in other forms of entertainment — and those efforts are starting to bear fruit.

In many ways, in fact, Amazon is on a quest not unlike the one Apple chose several years ago: A multi-front war to dominate key aspects of people’s leisure time.

Earnings-per-share quadrupled analyst expectations in the first quarter of 2012, helping convince skeptics it could actually pull off its transition from retail to tech company.

During that quarter, nine of the 10 top-selling products on Amazon.com were digital. While that includes e-books for the company’s Kindle, it also included movies, music and apps.

Amazon, of course, will continue its retail battles with Wal-Mart and other stores, but increasingly these days, it’s setting its sights on Netflix, Hulu and, of course, Apple. And some of those fights could get ugly.

Amazon vs. Netflix

The very public stumbles by Netflix last year were like a starter pistol for Amazon. As Netflix customers fumed, Amazon touted its Prime Instant Streaming.

Today that service offers more than 17,000 movies and television episodes — and Amazon recently announced licensing agreements with Discovery Communications, Viacom and Paramount. It’s still dwarfed by Netflix, which boasts 60,000 titles and streams six out of every 10 digital movies according to The NPD Group, but Amazon holds something of an ace up its sleeve. It’s cheaper — just $79/year versus Netflix’s $96 — and it’s marketed as a free add-on to the company’s Amazon Prime service (which gives users free two-day shipping and free access to a sizable library of popular eBooks).

Amazon doesn’t break its financials out by its divisions specifically, but in its year-end earnings, it did note the number of Prime Instant Video streams increased 300% from the previous quarter.

Amazon also streams movies and video on an a la carte basis through its Amazon Instant Video service division, much like a cable operator’s pay-per-view operation. Through aggressive pricing, the company has been attracting customers at a steady pace, with the number of videos purchased or rented from the service more than doubling year-over-year during the fourth quarter.

Original content

While Netflix and Hulu have higher profiles in the burgeoning battleground of creating original programming, Amazon is already in the midst of planning its counterassault. Amazon Studios, a division launched two years ago to focus primarily on movies, has put out the call for original comedy and children’s series for distribution via the Instant Video service.

The company plans to option one project per month, adding it to the development slate, where it will be tested with audiences. From there, Amazon Studios will decide whether to create a full series.

“Amazon Studios wants to discover great talent and produce programming that audiences will love,” said Roy Price, director of Amazon Studios. “In the course of developing movies, we’ve heard a lot of interest from content creators who want to develop original series in the comedy and children’s genres. We are excited to bring writers, animators and directors this new opportunity to develop original series.”

Joe Lewis, previously with 20th Century Fox and Comedy Central, and Tara Sorensen, formerly with National Geographic Kids, are overseeing the new series development.

Amazon vs. iTunes, et al.

Amazon is no threat to iTunes when it comes to new music sales. While the company places respectably among also-rans in that field, NPD estimates iTunes owns roughly 70% of the digital field.

The cloud music space is still up for grabs, though, and Amazon was one of the first on the scene. Last March, Amazon pre-emptively launched Cloud Drive, a service offering 5 GB of free storage to all users – with a free one-year upgrade to 20GB limit to customers who buy an MP3 album.

Google quickly followed suit with Google Music and Apple joined the movement last fall with iCloud.

The early trends aren’t encouraging for Amazon, though.

Apple came into the cloud world with the advantage of customers who had bought more than 15 billion songs on iTunes at the time. And with more than 315 million iOS devices sold to date, the company may prove as dominant in the cloud music space as it has in digital sales.

New challenges

Given Amazon’s big footprint, the company is likely to see its competitors increase as the music and movie-streaming businesses grow. While few have previously given much thought to Barnes & Noble as competition in the entertainment space, Microsoft’s decision to invest $300 million in that company’s Nook business could change things.

While eBooks are certainly profitable, it’s unlikely the Redmond-based giant will limit its focus there. And the launch of the Nook tablet could help Barnes & Noble put pressure on the Amazon Kindle Fire’s media streaming options.

Microsoft has invested heavily in a streaming service for its Xbox console, and the company has made no secret that it hopes to expand that offering.

The Kindle Fire has been Amazon’s top seller since its introduction. It has been one of the few tablet devices to make any sort of impact on the iPad. And buyers have been eager to add content to it, says the company.

Should Microsoft back up the Nook tablet with its streaming video and music services, though, the fight between these companies is going to quickly move beyond eBooks and become something the broader entertainment industry may have to watch carefully.

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