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Why Amazon's Fire TV should scare the gaming industry

April 3, 2014: 5:00 AM ET

We saw what Amazon did to the publishing industry. Now it's going after videogames.

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FORTUNE -- Remember bookstores? Those adorable little places of curated and whimsy and fanciful stories? The place where we purchased books?

They're gone, mostly, and you can blame Amazon (AMZN). The $157 billion company got its start selling books online, happy to lose money while driving prices down, waiting for its brick-and-mortar competitors, with their thin margins and high overhead, to starve. They did, and Amazon won. The company has repeated this process for a number of other categories, to varying degrees of success. (Electronics, yes. Fashion, not so much.)

With Amazon Fire TV, announced yesterday, Amazon has its sights set on the gaming industry. The company's new Fire TV streaming system costs $99 and features, alongside ample video content, a suite of 100 games. That includes popular casual gaming titles like Minecraft and Monsters University, and other "high-quality, low-cost" hardcore games from Sega, EA (EA), Ubisoft, Telltale Games, and Gamelot. Users have the option to play games with the standard Fire TV remote, a smartphone app, or Amazon's newly revealed Fire game controller, which will retail for $39.99 starting in a month.

MORE: Amazon throws a firebomb in the battle for your living room

More meaningful than an inexpensive controller, or a game section in its service, is Amazon's new gaming studio. Amazon Game Studios is developing games exclusively for Fire TV, with a growing team: In February the company acquired a gaming studio with 75 employees called Double Helix. Today reports revealed Amazon hired Kim Swift, a designer of Portal, and Clint Hocking, a designer of Far Cry 2. Amazon Game Studios' first release is a game called Sev Zero, a third-person shooter game with the ability to go multiplayer. It looks and plays like the hardcore games from EA or Sega.

But in typical Amazon style, Sev Zero is a steal. The game only costs $6.99, and users who purchase the Fire game controller get it for free. Beyond that, the average price of paid games on Fire TV is just $1.85.

MORE: One big omission from the Fire TV announcement: No Amazon music

Compare that to the average price of videogames for Xbox (MSFT) or PlayStation (SNE). The latest World of Warcraft edition costs $49.99, or $69.99 if you upgrade to the digital deluxe edition. Grand Theft Auto V costs $54.99 for PlayStation 3. It's not clear if Amazon would convince those studios to include their games on Fire TV. Hardcore gamers will remain loyal to their systems and titles. But with Sev Zero and the host of low-cost games on Fire TV, Amazon is making a statement: The price of games will come down.

Compared with any other piece of digital media, from music, movies, and TV to news and books, games haven't taken a price hit with the shift to digital. With its entrance into the category, Amazon is likely to change that. Your move, game studios.

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