LAKE FOREST -- At a studio tucked away in a nondescript Orange County office park, Amazon.com is hoping to remake the video-game business.

Over the past year, two dozen or so developers at Amazon Game Studios raced to create "Sev Zero," a video game that's not so much a blockbuster as it is a window into Amazon's gaming ambition.

"Sev Zero" doesn't have mind-melting graphics or a riveting storyline that keeps gamers itching for the next battle. Instead, it's a somewhat familiar game, in which gamers battle aliens to protect Earth's power grid. The weapons include shotguns and rifles, and players can unlock upgrades as they progress through the game. The menacing aliens are never too clever.

"Sev Zero" is a fine diversion but not likely to displace "Halo," "Call of Duty" or the current favorite, "Titanfall," in hard-core gamers' hearts.

But it would be wrong to write off Amazon's game business as merely another feature it packed into its new Fire TV streaming-media device, launched last month. That would underestimate Amazon's ambition and misread the potential threat to as much as $1 billion of the company's annual revenue.

The online retail giant has been beefing up its game-development staff and acquiring game studios as one risk looms: It needs a strategy to replace its sales of shiny $60 video-game disks when the vast majority of those games are eventually downloaded or streamed.


Advertisement

To understand Amazon's strategy, it's important to consider digital-media history. Amazon was late to the digital-music transformation a decade ago, when Apple's iPod and iTunes shifted music sales from physical compact discs to digital downloads. CD sales plummeted and many millions of dollars in revenue evaporated from Amazon, among the largest purveyors of those disks. It eventually developed its own digital-music business, but it's been playing catchup ever since.

That was a wake-up call for Amazon. Its executives could see the same shift from physical sales to digital downloads coming for books and DVDs. So rather than allow another company to snatch those sales away, Amazon realized it needed to cannibalize its own business.

That led to the development of Amazon's Kindle electronic reader, a move that helped make Amazon the top seller of digital books. And it's driving Amazon's push into the digital delivery of movies and television programs with its Amazon Prime Instant Video service, which is duking it out with Netflix.

There's little doubt that the lion's share of video games, even the graphics-laden blockbusters that sell for $60 a disk, will one day be available via download or stream. Current limitations in bandwidth mean that day is still years away. But just as surely as music, books and movies can be delivered digitally, so eventually will games.

"That's become a matter of truth," said Mike Frazzini, the vice president who runs Amazon's game business, noting that there already are plenty of popular PC games, such as "League of Legends" and "World of Tanks," that are downloadable.

And for Amazon, that truth comes with some potential risks. Amazon generates about $1 billion in annual sales of physical video games from its website, said Robert W. Baird & Co. analyst Colin Sebastian. It's among the top video-game retailers, trailing only GameStop, Walmart and a handful of big-box stores. As the game market evolves to digital delivery, Amazon needs to put itself in a position to retain game sales that would otherwise disappear.

"It's absolutely critical that they stay relevant when it comes to digital distribution," Sebastian said. "For Amazon, they obviously need to be there."

While Amazon has little history in gaming, it brings plenty of other assets to the business. It clearly knows how to sell content digitally, having done so with the Amazon Appstore for Android devices. Its Amazon Web Services, which rents infrastructure computer services to other companies over the Internet, could one day render complex graphics on its servers and stream games online.

What's more, Amazon has plenty of money to invest and a history of taking long-term approaches to make new markets pan out.

Amazon's first serious step into game development came in 2008, when it bought Reflexive Entertainment, a Lake Forest studio that made casual games for PCs and the Xbox 360. In 2012, developers released "Air Patriots," a mobile game for the Kindle as well as Apple's iPhones and iPads and some Android devices.

In March 2013, the game studio got word that Amazon was going to launch a TV set-top box in a year, and the company wanted a marquee game that could debut at the same time. The task, though, wasn't to just build a fun game. Developers at the studio had to create a title that could showcase the capabilities of Amazon's new streaming-media device.

A small team of four developers and designers cobbled together a prototype that would become "Sev Zero." To move quickly, they reused assets created from other games. In the earliest prototype, the hero was a stock ninja character and the baddies, evil aliens in the final version, were ogres. Within three weeks they created a simple maze where the ninjas could teleport in and battle the ogres.

While the developers at the studio are proud of the game, they also recognize it's not a big-budget title in which they could address every last detail gamers might want. In the race to get the game done in time for the Fire TV launch, they weren't able to develop the sort of detailed backstory many gamers crave.

"In our schedule, we had to go light on story," said Brian Fisher, a programmer who worked on the game.

The Fire TV device, too, has mixed reviews, and early reception of its gaming platform has been lackluster.

"In its current form, I don't see it as much of a competitor," said David Cole, a longtime game-industry analyst at DFC Intelligence.

Fire TV doesn't have the graphics horsepower to rival the more expensive consoles made by Sony and Microsoft that appeal to hard-core gamers. At the same time, Cole isn't certain that casual gamers are all that interested in spending money on a Fire TV to get the quick gaming fix they can find on smartphones or tablets.

Amazon seems to be targeting a Goldilocks gamer -- not too hard-core, but not too casual. "They are going after the middle group, and that's really tough to do," Cole said.

Of course, Fire TV is only Amazon's first stab at a streaming-media and gaming device. Game consoles such as Microsoft's $499 Xbox One and Sony's $399 PlayStation 4 typically stay on the market for five years or longer before new models emerge. But Amazon's $99 Fire TV will likely get a refresh in a year or two.

There's no game for the Fire TV that rivals the best-selling games on either the Xbox or PlayStation, and there's little likelihood of one anytime soon.

For now, Amazon wants to show what's possible on its device. It wants gamers and game developers to see what it has created with "Sev Zero" and imagine what could be next.