Amazon Instant Video Challenges Netflix with App for the Xbox 360

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The Xbox 360 has long ceased to be just a gaming machine, which is why today’s announcement that Amazon’s Instant Video service is coming to the console makes sense.

The Amazon Instant Video app will allow subscribers to Amazon’s $79-per-year “Prime” service to stream more than 17,000 movies and TV shows from their Xbox 360 at no additional cost (you’ll need a $50-per-year Xbox Live Gold membership from Microsoft, though).

Non-subscribers and Prime members alike will be able to watch any movies they’ve bought or rented from the Amazon Instant Video store as well, although the ability to buy and rent movies and TV shows directly from the Xbox 360 isn’t supported yet. Kinect owners will get the added bonus of being able to search and play videos with motion and voice commands.

Why is this a big deal? As GigaOM reports, the Xbox 360 was responsible for nearly 25% of Netflix’s traffic last year. If Amazon wants more people to pay $79 per year for Amazon Prime, it needs to offer the service on as many devices as its competitors do.

Getting more people hooked into its media ecosystem also would benefit its tablet business. Amazon’s Whispersync technology lets you start a movie or show on your Kindle Fire and switch to your Xbox 360 without interrupting what you’re watching. That’s the kind of synchronized media environment that everyone is pushing for now.

As for Microsoft, this move helps explain its recent move to offer an Xbox 360 for $99 — provided you sign up for a two-year membership to Xbox LIVE Gold. This helps cement its position as an all-in-one home entertainment device, which is necessary to expand its appeal beyond gamers. Oh, and in case you don’t have an Xbox 360 already you can always buy one — from Amazon, of course.

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