Amazon’s Fight Against Content Middlemen: Books, TV, Movies, Games

4/23/12Follow @curtwoodward

The publishing industry was rocked last year when Amazon.com, long the most important retailer in books, got serious about becoming a publisher. No longer content to control a few niche imprints, Amazon took aim at the big publishing houses’ cash cows by directly signing up best-selling authors and hiring an industry insider to run the show.

The war of words surrounding that competitive assault has been pretty brutal, with Amazon accused of trying to destroy a valuable cultural institution. And now that Amazon’s drive to sell books at lower prices appears to be winning a legal fight over the publishers’ price-fixing with Apple, blood will probably start boiling even more.

The middlemen in other content industries had better get used to that feeling. The Seattle-based online juggernaut (NASDAQ: AMZN), well known for its methodical approach toward squeezing the competition and rooting out inefficiency, is also interested in producing TV shows, movies, and video games.

These initiatives are in their early stages, but when combined, they illustrate a four-front offensive against the middlemen of digital entertainment, where the barriers surrounding distribution and production are quickly being erased by technological innovation.

As affordable digital tools make content creation easier than ever, the channels for delivering that content are also going through a revolution: faster broadband enables large files to be streamed nearly anywhere; ubiquitous mobile devices can put a high-resolution, connected screen in anyone’s hands; software-supercharged distribution channels make it easier to help consumers find and procure content.

Publishers aren’t the only ones who should be paying attention as Amazon signs up more content creators. Apple, Google, Facebook, and perhaps Microsoft appear to be barreling toward a future of separate walled gardens to distribute content and capture user data, where they control most of the value chain: delivering digital services over the air and straight into the consumer’s face (and pocketbook) via their own mobile device.

Each of the big players is better at some aspects of this chain than others—Apple’s devices are the envy of the business world, while its software is pretty subpar. But none of them is making a play to own content as aggressively as Amazon.

In fact, since Amazon’s mantra is to focus on the long term, it might be better to simply see this as a drive by the company to play in content, full stop—not movies or books or games or TV shows.

Our ideas about what defines each of those different formats could very well be changed, too, by the converging digital media landscape we’re in the middle of right now. In 10 years, do you think we’ll really have separate cable boxes and video game consoles and laptops and Blu-ray players, all handling different types of content?

In Amazon’s battle against these content producers, technology strategy consultant and writer Venkatesh Rao says, “there aren’t four fronts. There is just one front: content.”

“Maybe the next big hypermedium will be movies with read-along book chapters inserted between scenes. How do you position for something like that? You have to own the distribution chain from cloud store to device, and have a stake in the creative experimentation in the content world,” Rao says. “It’s the only way. A pure bet on just movies or TV would be too risky.”

It’s possible that these forays into publishing are more like experiments for Amazon, which has shown a willingness to try completely new businesses that might not pay off or become a major initiative for a long time. Its Amazon Fresh delivery service, for instance, could be a “last-mile” shipping competitor with trucking companies, but still only operates in Seattle.

Fred Zimmerman, an author and small publisher, thinks Amazon’s expanding publishing footprint fits into this experimental category rather than a plan of world domination, since “they can never publish enough content to be more than a drop in the ocean relative to all providers.”

“I think it’s more about 1.) skimming the cream, 2.) filling obvious profitable gaps, 3.) organizational manifest destiny (why should we restrain ourselves when we can create a best seller with one push of a button?)” Zimmerman wrote in response to my question on Quora.

That is definitely possible. But remember, this is a company with a track record of turning quirky side pursuits into big businesses—like on-demand cloud computing, a key technological enabler in a world of ubiquitous digital content. And the signs that Amazon is interested in building its own content-publishing businesses are pretty clear.

BOOKS
This is the foundation of Amazon’s whole online retailing business, and it’s also been the first place for Amazon to make bold moves into cutting out the middlemen. A fantastic primer on the subject is this Bloomberg Businessweek story about how Amazon drafted publishing veteran Larry Kirshbaum to lead its newly aggressive publishing arm.

Since then, Amazon has continued to sign up authors and acquire the rights to valuable back-catalogs, including the James Bond books. Kirshbaum recently said that Amazon is publishing about 40 books a year, and is looking for literary novelists for its roster. The company also counted a major victory when the Justice Department set out to smash Apple’s pricing agreement with the major publishers, an arrangement that previously allowed the publishers to take back control of retail prices from bargain-happy Amazon.

Authors, meanwhile, seem divided on the effects of Amazon becoming a competitive publisher. Some prominent authors have, of course, signed right up for the new experiment, either excited by an innovative idea or openly disdainful of the old publishing houses.

Others are nearly apocalyptic about the idea of letting Amazon gain so much vertical control—as popular Seattle-area author Sherman Alexie recently said on Twitter, “Soon, Amazon will monopolize publishing, editing, book sales, and publicity. One place, one power. And you’re okay with that?”

MOVIES
Amazon’s second most-developed area of experimentation in content publishing is developing screenplays and small movies through its Amazon Studios division. That experiment has engendered some of the same reactions that authors had toward Amazon in the book-publishing fight: some wariness, mixed with enthusiasm.

You haven’t seen any really panicky reactions from the studios, who now control most of the industry, to Amazon’s encroachment on the early stages of movie development—in fact, Warner Bros. has a deal to distribute any promising films that emerge from the Amazon Studios effort to find and develop new scripts.

But the studios might not always feel that way. Screenwriter Sean Hood thinks Amazon has the potential to fundamentally disrupt the Hollywood studio system, once technology advances enough that streaming content can be delivered to any screen and the studios aren’t needed as 20th-century distributors any longer. At that point, Hood writes, “nobody who has the money to fund a movie will need to go to a traditional studio or cable company for distribution.”

“There are a lot of forces at work trying to slow [and] avert this paradigm shift. The traditional system of studios and agencies still have control of the major directors, producers, and A-list actors. It’s difficult to see how a newcomer could jump in and make $200 million movies,” Hood told me in a follow-up interview. “But the key for Amazon is the long tail. Let the traditional studios risk it all on mega-budget blockbusters.”

Amazon recently tweaked its Studios deal to be more appealing to screenwriters in a few ways: Now, when writers submit a script, Amazon only has exclusive rights to it for 45 days, after which it may pay $10,000 for an 18-month option. Before, submitted scripts were automatically subject to an 18-month lock-up period, with no money changing hands.

Amazon’s production arm, People’s Production Company, also recently inked an agreement with the Writers Guild of America, meaning that members of that professional union can now work with the company. And scripts can be submitted privately, to allay fears of an idea getting ripped off once it’s in a public online forum.

GAMES
As I first reported in January, Amazon has begun hiring game developers, artists, and producers at one of its California-based R&D sites, building on some earlier tests of building in-house video-game content.

As is typical with a company of this size and importance, any trepidation that developers might feel about competition is kept pretty quiet because of Amazon’s importance as a distribution channel—particularly now that the Kindle Fire has been established as the top iPad competitor.

Of course, the video game business has a lot more technically adept and innovative players than other traditional content publishing and distribution industries. Startups and established studios are constantly experimenting with new platforms, new business models, and new ways of delivering content. Take Seattle’s PopCap Games (now part of EA), Big Fish Games, Zipline Games, and Z2Live, to name just a few.

We have not yet seen a real public face put on Amazon’s game publishing business, and some industry insiders are a little dubious of the company’s ultimate goal—is it really to make games, or more to develop a better gaming platform via some demonstration titles?

We’ll have to dig up some more information on this front. But if it’s willing to sign contracts with authors and screenwriters to fill its content pipeline, it seems logical to think that video-game developers might also fit the bill.

TV
This is still in the early stages, too. Original TV programming is tied to Amazon Studios, which previously was dedicated to developing movies. Amazon started listing jobs for creative executives working on original TV series in February, and an employee with experience in the industry experience was spotted on LinkedIn briefly listing his job title as vice president of original television (he changed it to something less specific once reporters pointed out the job title).

Today, Amazon still lists an opening for a creative executive “to help develop half-hour children’s series for online and traditional distribution,” based in Studio City, CA. The listing calls for experience in TV production, animation, and online video.

Amazon, of course, already has a streaming video service like those offered by Hulu and Netflix—both of whom also are experimenting with original content. So it makes competitive sense for Amazon to develop its own content, no matter the format, that might be streamed over that channel.

“I think Amazon is looking to dominate the middle and tail end of content, both in movies and television,” Rao says. “Amazon is very patient and willing to experiment.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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