NEW YORK (AdAge.com) --As Apple and Microsoft duke it out over music, Amazon is focusing its attention on video.
A year in the works, the e-tailer's digital-video-download service is set for a mid-August launch and will feature a subscription service and a la carte movies and TV shows. Yes, folks, that's more ad-free TV for sale.
The service, which is referred to as Amazon Digital Video -- or Amazon "DV" -- has evolved over the past year from a music-themed offering to a video-centric one, according to production-studio and TV-network executives briefed on the plans. The reason? Apple, these executives said, already commands such a large share of digital-music sales that Amazon felt it would be too difficult to break into the market.
Amazon's service will require users to install software on their computers to allow them to buy videos a la carte, likely as part of a download-to-own model, or subscribe to them, like a digital version of Netflix's rental model. While executives at some TV networks say they have been working with Amazon and hope to be on board at launch, noticeably absent, at least for now, is iTunes video pioneer ABC. An executive familiar with ABC's digital-distribution plans said the network is "not close to any type of deal with them."
While other nascent digital-video download services, notably MovieLink and CinemaNow, have failed to catch on with consumers -- mostly, analysts say, because they offer clumsy, inconvenient user experiences -- Amazon's reputation for ease of use could help it capture the video-download market, much as iTunes did with its simplicity in the music market. If that happens, it's sure to speed up consumers' comfort level with paying for ad-free TV content -- at a time when networks are trying to launch their own ad-supported video-on-demand plays. ABC, for example, has offered online versions of its shows that allow the advertisers to ride along and has plans for a more sophisticated offering in October.
Avoiding Apple and Microsoft
Amazon's switch to video also hints at a reluctance to take on not one, but two behemoths battling over online music sales. While Apple's iTunes commands a 67% share of digital-music sales, Microsoft plans to launch its own service, called Zune, along with a much-buzzed-about Wi-Fi-enabled portable media player. Microsoft is generally regarded as the most viable competitor to Apple's market-swallowing iPod/iTunes combo, earlier this year having launched a subscription music service with MTV, Urge. Meanwhile, the Microsoft player is being developed by J. Allard, the force behind Microsoft's Xbox, which successfully catapulted Microsoft into the gaming market previously owned by Sony and Nintendo.
"Right now we've got music services all over the place, but video is not cooked yet," said Rob Enderle, principal analyst at Enderle Group. "Amazon sees that as an opportunity to step into the space and own it. And a lot of their business is selling DVDs."
Future business projections
Revenue from licensed digital-music distribution doubled in 2005 to $653 million, according to PricewaterhouseCoopers, which estimates that by 2010, digital music will be a $20.7 billion market. In contrast, the firm said consumers spent only $1.1 billion on online movie-rental subscriptions and $1 million on digital-streaming movies in 2005. Digital-streaming services are expected to outpace online rentals, by 2010 generating $400 billion in annual spending while online rentals will be a $3.2 billion business.
For Amazon, using a digital-download service to sell more CDs, books and DVDs -- Amazon's biggest category at $3 billion, two-thirds of annual sales revenue last year -- will be priority No. 1. But the company also has launched a DVD-rental service, similar to Netflix's, in Germany and the U.K. and has intimated that it may bring similar service to the U.S. Having an instant downloadable aspect to any forthcoming rental service would be imperative, especially as Netflix has been rumored to be exploring its own digital-movie-rental service.
Amazon owns IMDb.com, the database of Hollywood information, and has been trying to get into the content creation business. Its first foray is a promotional program called "Fishbowl," a series of Bill Maher-hosted interviews, sponsored by UPS and Cingular. Mr. Maher's guests include moviemakers, actors and authors -- all of whose products can be bought on Amazon.
Apple explores movie download service
Apple is also said to be talking to movie studios about a movie-download service. The company is historically tight-lipped, but many suspect such an announcement at Apple's annual developer conference is in August.
What will set Amazon's service apart, analysts said, is its reputation as a trusted resource -- mostly fueled by the company's sophisticated recommendation engine, which has been credited with helping the company increase profitability in its core online-sales business.
"They could make a move in an area that's not being done well now," Mr. Enderle said. "It'll allow them to showcase their marketing and user-experience expertise."
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CORRECTION: An earlier version of this story incorrectly named FedEx as one of the sponsors of "Fishbowl." UPS is one of the sponsors along with Cingular. In addition, the story also incorrectly reported consumer spending on online movie-rental subscriptions. The correct figure is $1.1 billion, not $1.1 million.