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Amazon poised for film downloads assault

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It comes as little surprise for those that follow online video downloads that Amazon is in discussions with the major studios, as the New York Times and Wall Street Journal both state this week.

Amazon acquired CustomFlix back in July last year, a partner company that allows films to be downloaded for burning onto a DVD. The company has since entered the High Definition TV business backing the Toshiba based HD DVD platform for downloading and burning high def films.

Those leaking to the US national newspapers say that the negotiations are advanced and they are with Paramount, Universal and Warner Brothers. Why not also with Sony, Disney and Fox? Perhaps that's because they all support Blu-ray DVDs exclusively.

In the end, given Amazon’s open handed relationship with both HD DVD and the Blu-ray camps, and the fact that it sells players, we would expect it to eventually do a deal with Sony’s Blu-ray as well and talk to the other studios. Amazon's service would be far more analogous to being iTunes for video, than most of the other online film services that have been launched so far, because it will allow burning of the films onto DVDs as iTunes allows with CDs.

Other services that have been recently announced include Starz Vongo, launched in January, iTunes itself, and at CES no less than five competing film services were launched by Google; Sony, through its Connect service; Clear Channel; 4Flix.Net; and Blinkx. Since then Arvato and LoveFilm and NTL have all launched services in Europe, and DirecTV has just announced it will have a service by year end.

This week, further rumours of a BlockBuster online service emerged with the CEO dropping heavy hints that the company as almost ready to go, when he spoke on a conference call. The Blockbuster service would be a download to rent service as are many of the others. Microsoft has also just made Movielink films available on its new Origami PC.

But once Amazon joins this market, there is likely to be an immediate rush for cover and some sector consolidation, and it is likely that many of these new services won’t last 12 months up against a serious minded Amazon. But will it be serious about this market?

Amazon had a brief love affair during the summer with online DVD rental, putting out a low end UK service and was rumored to be considering a global roll out. But as we reported at the time, the margin on online DVD rental is far too low to attract Amazon and it would have eaten into its DVD online sales business, which is considerable. It was never going to do that.

Wal-Mart also tried its hand at online DVD rental, only to end up handing the business over to Netflix to run on its behalf. Amazon and Wal-Mart are the two largest sellers of DVD and once online downloads begin to take off, they had to get into the business, or risk their core business becoming marginalised. The only surprise is that it's taken this long.

Amazon’s exact strategy is yet to become apparent and there are many approaches it might take. If it goes flat out at this business, it will be "eating its own children" the phrase universally used when a company introduces a service that could undermine one of its core businesses. If it doesn't, then it could deliberately hamper sales by offering a business model where online downloads are more expensive than DVD purchases, which would neither make sense, nor work effectively, because it just wouldn’t be competitive.

Amazon could, of course, decide to only allow file downloads of titles that are currently not worth stocking as DVDs, which would also make this a weak service. We doubt it will do anything other than come out with a solid execution on a business that will effectively end up one day replacing one of its biggest money spinners. After all, DVD sales have flattened, leaving even Amazon looking for its next round of revenue growth.

Amazon already has a film asset in the imdb.com Internet Movie Database which appears in many video search engine hits and it could use this as its general guidance on content, and for consumer rankings on all of the films it offers for sale (although it would need to fill those Sony, Fox and Disney holes quickly).

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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