Amazon's Entry a Threat for Game Developers? - Analyst Blog

Amazon.com Inc.'s AMZN recently released Android-based Internet video-streaming set-top box called Fire TV could pose a threat to game developers.

Amazon's new streaming device, Fire TV, consists of a quad-core processor, 2 GB RAM and a Graphics Processing Unit. The device doubles as a gaming console which could help Amazon to successfully compete with tech players like Apple AAPL and Google in the home entertainment market.

Additionally, game developers like Electronic Arts EA and Take-Two's TTWO 2K Games unit, Sega, Gameloft and Disney could witness increasing competition from Fire TV. The company stated that the device will support thousands of Android games by next month. Further, the online retailer has plans to develop gaming titles with better graphics from its gaming studio at a cheaper cost. This is expected to highten competition for other game developers. For those interested, Amazon is also offering a separate game-controller called Fire game-controller for $39.

Also, there is a possibility that Amazon's Fire TV integrated with the gaming feature might as well replace game consoles like Sony's PS4s, Ninetendo's Wiis and Microsoft's Xbox. This could be a severe blow to game developers like Electronic Arts and Take-Two that develop games for these devices.

The market sentiment can be gauged from the share prices of Electronic Arts and Take-Two, which fell 2.0% and 3.9%, respectively, in after-hours trading.

Whether Amazon can edge past other gaming companies in the fragmented and highly competitive video game market remains a wait-and-see story. It is unlikely that the online retail company will immediately capture the attention of hard-core gamers compelling them to replace their PS4s and Xbox Ones with the new gaming device.

However, Amazon has done exceptionally well in new fields like cloud computing and tablet computers. Despite being a late entrant in the home entertainment and gaming markets, Amazon could succeed on the back of its innovative ideas. We believe the company's promotional techniques, wide array of low-cost titles and other strengths could come into play, helping the expansion of its streaming devices and strengthening its competitive position.

Currently, Amazon has a Zacks Rank #3 (Hold).