Kindle's Fire will be dampened in Canada by lack of streaming services

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On November 15th, Amazon Inc. is having a Fire sale. But Canadian customers need not apply.

That's the date on which the Seattle-based company will begin selling its new tablet, the Kindle Fire. Priced at only $199 and bundled with Amazon's sizeable catalog of streaming movies, music and books in tow, some analysts say this tablet is the most viable competitor to Apple Inc.'s iPad yet.

Sadly, the Kindle Fire is only available to U.S. residents, no date has been given for international shipments. But even if Canadians smuggle one over the border, there's the problem of content.

iTunes, with its catalog of multimedia content, is available in over one hundred countries worldwide — including Canada. Amazon services, such as Instant streaming video and MP3 Cloud Storage, are only available in one.

In the U.S. at least, these services are quickly becoming Amazon's bread and butter. And the Kindle Fire can't exist without them.

Which means that, for Canadian customers, Apple's best-selling iPad is still the only tablet in town.

"Amazon sells software and services, but the lion's share of Apple's revenue still comes from hardware," said Forrester research analyst Sarah Rotman Epps in late August. She believes that makes Apple "vulnerable to a company such as Amazon, that isn't seeking profit from hardware sales."

Priced at only $199 — far cheaper than Apple's entry-level iPad, and almost all of its competitors — many suspect Amazon is selling the device at a loss. Piper Jaffray analyst Gene Munster, in a note to client's following Wednesday's announcement, said it was "likely" that Amazon would lose about $50 per device.

It's believed the online retailer will attempt to recoup costs through sales of its online music and video subscription services. However, company executives were less forthcoming.

"That's not how we look at our business," said Amazon vice president of Kindle, Dave Limp, at the company's event in New York City on Wednesday. "Without talking specifics, we need to make both our [products and services]profitable."

But in places like Canada, where the majority of Amazon's online services remain unavailable, turning a profit could be difficult to do.

"The Kindle is a Trojan horse for Amazon's retail and media brands," said Morgan Keegan analyst Justin Patterson. Selling the Kindle Fire internationally, without access to Instant streaming or the MP3 store, would make little sense.

Mr. Limp went onto explain that a Kindle Fire taken abroad would only work with the Amazon services available in that country. In Canada, where only Kindle books are available, the Fire's value would be significantly reduced.

But even Kindle access is limited for Canadians too. When Amazon CEO Jeff Bezos noted the service's explosive growth during Wednesday's event — from just 90,000 titles at launch, to more than a million today — he failed to mention that only a fraction are available for purchase abroad.

Amazon is hardly the first U.S. company to face challenges with bringing content and services to Canadian consumers. Online music streaming service Pandora has long maintained that licensing fees here can cost up to 45 per cent of the company's gross revenues.

"That places Canadian licensing costs far above those found in the U.S. and Britain, forcing many providers to look for more cost-competitive markets," said Ottawa University Media Law professor Dr. Michael Geist, in a post on his blog from last year.

In the case of online video, he theorized that while many of Netflix's deals with content providers and cable companies include the rights to U.S. streaming, it's likely that popular content has already been licensed for exclusive online distribution by Canadian broadcasters instead.

"Just because a piece of music [or video]is owned by a certain rights holder in the U.S. doesn't mean that permission is good for a different territory," echoed Kaan Yigit, president of Solutions Research Group in Toronto.

It's possible existing deals established for Amazon's Instant streaming service in the U.S. are unlikely to translate here too.

For example, in the U.S. Netflix's Watch Instantly service has almost 13,000 titles available for streaming, but only 1,000 or so are available to Canadian subscribers according to Instantwatcher.com.

But that's not to say Apple's own international expansion was any easier. Compared to Amazon, they simply have a head start.

"Their video component was late. Their music store was late," Mr. Yigit points out. "Canada is secondary or tertiary market for most."

And for now, it looks like Amazon feels the same way.