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How Amazon Aims To Disrupt Microsoft, Sony In Gaming Consoles

Video games are far from the first thing that comes to mind when thinking of e-commerce leader  Amazon.com ( AMZN ). Yet the company’s conspicuous presence at the March Game Developers Conference suggests it is ready to play. At the San Francisco conference, Amazon set up one of the largest exhibits, a multilevel edifice complete with artificial grass. Within the compound, a massive black booth was emblazoned with the logo of Twitch, the video-game-focused live streaming site Amazon bought in 2014 for nearly $1 billion. And nearby rested a machine that printed T-shirts. The company was courting developers, giving out swag and touting its new game engine called Lumberyard. This — its game development business focused on creating high-quality titles — is part of Amazon CEO Jeff Bezos’ efforts to strike gold in the $40 billion video game market. “Amazon’s   interest in  games  is  entirely a function of our   focus on customers,”  Mike Frazzini, vice president Amazon Games, told IBD. “G ames is a  really interesting space,  where there’s a number of different sets of customers  to obsess about.” Amazon has been in gaming for more than a decade, selling games via its e-tail website. Still, Wedbush analyst Michael Pachter told IBD the company is behind its rivals. “Amazon is late to the party,” Pachter said. “But it’s more committed than others. Bezos never was into games, and he’s trying to get it all — music, video and now games.” Frazzini wouldn’t comment on whether the company was late: “We’ve been focused on gamers,  game developers,  and this body of customers that sits kind of in the middle,  for a long time.” Amazon May Not Need Its Own Console Some observers say Amazon could come out with its own game console. But Pachter says Amazon might look to disrupt the game console market by enabling some of its devices, such as its Fire TV or Kindle, to play lower-end games. “What do you need a console for?” Pachter said. “Why not get an Amazon Fire TV box?” If costs fall, though, perhaps a console is possible, he says. “What if (in the future) a super high-end graphics card is $10 and a CPU $25? Then Bezos could sell you a console for $50.” New game consoles now start nearer to $300. Amazon declined to comment on future plans. Apple ( AAPL ) and Alphabet ‘s ( GOOGL ) Google also are in position to attract more video game business, Pachter says. Patcher sees smartphones also taking more and more business from consoles. Today’s phones are already powerful computers, he says, and will only improve — with better graphics chips and microprocessors. He says smartphones could be used to play even high-end video games broadcast onto a television. Sony ( SNE ) didn’t respond to requests for comment. Microsoft ( MSFT ) didn’t make executives available to comment. Nintendo ( NTDOY ), the third of the big console makers, was hit hard when smartphones became commonplace for mobile gaming, since Nintendo had focused on its own devices. Still, Sony and Microsoft have a strong research and development effort behind their PlayStation and Xbox consoles, so Amazon would not find it an easy market to disrupt, some say. “Sony and Microsoft have a large market share,” Sterne Agee analyst Arvind Bhatia told IBD. “I don’t know when Amazon can launch its own console. It’s a very difficult market to crack open.” Amazon Lumberyard And Underground Underground is a novel concept in the industry. Instead of trying to attract players with free mobile games and then up-sell them on virtual swag once playing, Amazon says that its approach, which it calls Underground, encourages developers to make better games that keep players playing. To compensate developers, Amazon pays for every minute played, but it’s unclear just how Amazon plans to make money with such a strategy. In September, Underground had about 700 games, and analyst Pachter says it’s looking to establish itself as a dominant content market, much like the way Amazon dominates e-tail. Still, content still remains king in the video game industry, which is likely why Amazon built Lumberyard, a development platform that provides the building blocks software engineers need to make games quickly and efficiently. One of Lumberyard’s selling points is that it’s hooked in to Amazon Web Services (AWS), the company’s cloud computing services provider. “T he idea of L umberyard is to provide a triple-A game engine   that’s capable of achieving the highest possible quality of game, t hat’s also deeply connected with AWS  to allow games to connect to the cloud to create those multiplayer experiences to help them grow  and build a vibrant audience of fans,” Frazzini said . Amazon aims to leverage its range of e-commerce-related gaming businesses to attract developers.  If Amazon can make inroads among developers, then it gains key leverage in the video games field. “Video gaming is a razor blade model — consoles make no money,” analyst Bhatia said. “It’s imperative you get support from content creators.” But several developers told IBD they’re concerned with how Amazon is structuring the deal, fearing that a loosely worded license agreement will let the Seattle-based company bully them in the future into using other Amazon add-on services, such as Twitch or AWS. Amazon Must Build Trust With Game Developers Likewise, Amazon needs to convince developers to switch from one of the two dominant video game engines — privately owned Unreal and Unity. Developers have to chose one, and the costs of changing are high. According to analysts, Lumberyard doesn’t offer a valuable enough reason to switch. To succeed, Amazon will have to earn developers’ trust. Amazon’s Frazzini says that while building Lumberyard, Amazon consulted a “small group” of customers in a “confidential fashion, who helped guide the development of what we ended up building. And the response has been very positive.” Spokeswoman for video game powerhouse ActivisionBlizzard ( ATVI ) Mary Osako declined to comment on Lumberyard and Amazon’s plans. Rival Electronic Arts ( EA ) spokeswoman Sandy Goldberg said that the company has “a number” of Android mobile app games on Amazon’s Underground platform and that the company works closely with Twitch as well, though she declined to elaborate further. But Amazon doesn’t see the video game engine market as a winner-take-all. “There are some game engines that developers can choose from, and that’s what’s great about the games industry — developers have a choice,” Amazon spokeswoman Rena Lunak told IBD via email. “We think the industry is more than big enough to support multiple commercial game engines. ” One way Amazon is trying to woo developers through value-added services is with Amazon Merch, which lets content creators hawk T-shirts on their storefronts featuring their brand and get royalties on each sale. While on the periphery of Amazon’s gaming push, it serves to illustrate that Amazon’s approach is comprehensive, and it is willing to leverage its massive e-commerce platform in any way possible. Another method for wooing developers is by linking AWS to the Lumberyard engine — among other services that Amazon’s mighty e-commerce empire offers. The ability to use its massive scale and expertise in e-commerce might be enough to ensure that Amazon can stake its claim in the video game market.

Drone Racing Goes Mainstream With ESPN TV And Streaming Deal

Loading the player… Drone racing is now going mainstream, with ESPN agreeing to a multiyear distribution deal with the International Drone Racing Association on Wednesday. The first event that the “worldwide leader in sports” will showcase is the U.S. National Drone Racing Championship this August in New York. Some say the sport is poised to become the next Nascar or Formula 1, with the same high-speed rush and potential for corporate sponsorships. The only difference is the driver, or pilot, is controlling the exhilarating experience through goggles displaying live video from the point-of-view of the drone. The IDRA says drone racing is seeing an “unprecedented rise in popularity,” and ESPN says the fans are “a growing and passionate audience.” IBD attended a drone racing event earlier this year to find out firsthand what the quadcopter sport is all about. “It’s like video games on steroids,” said a pilot at the event, who goes by the nickname “Bapu.” The deal includes live streaming on ESPN3 and follow-up one-hour specials of the events on an ESPN network. The pact comes as the Walt Disney ( DIS )-owned sports network is looking for new audiences as it loses subscribers at a concerning pace, alongside the rise of video-streaming services. ESPN has also experimented with broadcasting video-game championship events to get more viewers. Though ESPN seems to be struggling, live sports content has not yet been tackled by Netflix ( NFLX ) or  Amazon ( AMZN ) Video — or by Hulu, which is co-owned by Disney, 21st Century Fox ( FOXA ) and Comcast ( CMCSA ). Disney shares rose 2.2% on the stock market today . Netflix climbed 2.5%, Amazon.com 1.9%, Fox 1.7% and Comcast 0.4%.

Amazon, Facebook, Google In Legal Limbo On Nixed European Data Pact

Europe and the U.S. continued a privacy tug-of-war Wednesday over transatlantic data transfers, leaving tech giants like Amazon.com ( AMZN ), Facebook ( FB ) and Alphabet ’s ( GOOGL ) Google up a legal creek until at least June. The Article 29 Working Party, an advisory group, said Wednesday that the proposed EU-U.S. Privacy Shield is “complex, various and nebulous,” but said what’s clear is that six situations in which the U.S. can survey Europeans are unacceptable. “The possibility that is left in the Shield and its nexus for bulk collection, which is massive and indiscriminate, is not acceptable,” Chairwoman Isabelle Falque-Pierrotin said during a press conference. Falque-Pierrotin also questioned the ombudsperson position, created to handle European grievances over U.S. data collection. Though it’s “great progress,” there’s no guarantee the ombudsperson — a U.S. official — will be totally independent, she said. Catherine Novelli, U.S. undersecretary of state for economic growth, energy and the environment, has been tapped for the position. But Falque-Pierrotin argued that the European Data Protection Authorities (DPAs) would be a better fit for the job. Falque-Pierrotin suggested that the Article 29 Working Party re-examine the Privacy Shield in two years, when the more stringent European General Data Protection Regulation  goes into effect. Ombudsperson, Bulk Surveillance Questioned Although the group’s opinion isn’t binding, it’s a serious blow to the proposed Privacy Shield, which is intended to replace the 15-year-old Safe Harbor Agreement , shuttered in October in a case against Facebook. Then, Austrian grad student Max Schrems accused Facebook of cooperating with an NSA data-collection program. Facebook has denied the allegation, but the European court’s ruling is “rather demanding,” Falque-Pierrotin said. The European Commission can pass the Privacy Shield without the group’s blessing. But in its current form, the Privacy Shield would be subject to numerous judicial challenges, Mary Hildebrand, a partner at law firm Lowenstein Sandler, told IBD. Under the Schrems decision, the Safe Harbor replacement must provide essentially equivalent security, she said. “The feeling is the ombudsperson doesn’t have the ability to act independently,” she said. And a January 2014 Obama directive allowing bulk surveillance isn’t very well defined from a European perspective. Now, thousands of companies are sitting in legal limbo. “It prolongs the uncertainty across the board,” Hildebrand said. “For a U.S. company to implement the Privacy Shield, it would not, for the foreseeable future, be a reliance means of data transfer.” Legal Loopholes Meanwhile, companies are jumping through legal loopholes, including standard contract clauses and binding corporate rules, for transfers. Other loopholes, like individual consent, are cumbersome for consumer-facing businesses that process thousands or millions of data transfers each day. Individual consent must be “unambiguous and fully informed,” Hildebrand said. “So, the company must tell the individual all the different uses their data could be put through,” she said. “And every time an individual would be asked to transfer data of any kind, they would have to click a different consent.” Multiply that by thousands or millions of interactions, and “can you imagine how impractical that would be?” she asked. The Information Technology & Innovation Foundation in Washington D.C. argued against delaying the Privacy Shield implementation, saying “a prolonged climate of regulatory uncertainty places unnecessary strain on the digital economy, hurting businesses, workers and consumers.” Image provided by Shutterstock .