Amazon: TV is about to get way more interesting

December 21, 2012: 8:25 AM ET

With the original programming strategies of all the major Internet video-streaming companies now in place, the TV business is about to change drastically.

121220032948-amazon-tv-gallery-horizontalFORTUNE -- When Amazon announced the creation of Amazon Studios and its plans to create original TV programming in May, it was widely described as a "crowdsourcing" project, giving ordinary people a chance to become TV producers. But of the six pilot shows the company has greenlighted, five come from producers either with impressive television resumes, or who are famous for something else.

Just one show, a sitcom, was written by unknowns. The others include TV veterans from shows like 30 Rock, The Daily Show, and Big Bang Theory, as well Gary Trudeau, author of the Doonesbury comic strip, and the people at the satirical newspaper The Onion.

The roster of pilots sets up a battle royale involving Amazon (AMZN) and other Internet-video outfits and the TV networks. Nearly all major Internet-based companies have high-quality (or at least, potentially widely popular) programming in the works. They'll be battling the networks and the cable companies as much as with each other. The TV business is about to get even more interesting than it already was.

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By largely abandoning the "crowdsourcing" of production, Amazon is acknowledging that its competitors -- Netflix (NFLX), Hulu, and to some degree YouTube (GOOG) (which is focusing mainly on niche programming mainly comprising short videos) -- are working like big-time TV producers rather than Internet startups. Netflix is producing "premium" programming that supposedly would fit in well on HBO or maybe AMC. Hulu's budget for its original programming is a stunning $500 million a year.

Hulu's programming is the most network-TV-like of the bunch, which is not surprising as it is owned by several traditional TV networks. Its shows include a documentary series hosted by Morgan Spurlock of Super Size Me fame, a travel show hosted by director Richard Linklater, director of Dazed and Confused, and a scripted comedy. Like network TV, the shows will be released weekly. On Netflix, by contrast, whole series will be made available all at once -- a strategy that's designed to attract high-level talent.

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Competing with such fare would be highly risky if Amazon were to stick hard to the plan to solicit scripts from the general public. The "crowdsourcing" element, however, will stay in place in one respect: the pilots will all be streamed free of charge, and the viewing public will be given a chance to weigh in. The shows that are chosen to become series will be made available to subscribers to Amazon Prime, which already offers access to Amazon's film and television library. (Amazon's Prime service is increasingly the nexus of all its consumer-oriented services and hardware businesses.)

There is a big risk element for all the Internet-TV producers. It's not yet known whether they will be able to attract anything approaching the kinds of ratings TV networks enjoy, and hence grow to be truly competitive. But they also have little choice: as their libraries of second- and third-run moves and TV shows grow increasingly similar to each other, they risk becoming commodities. They have to shell out one way or another: either by paying premiums for exclusive distribution contracts with studios, or by creating their own programming. By doing the latter, they are at least more in control of their own destinies. And by hiring top talent, they are clearly formidable competitors to the traditional TV business.

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