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Amazon Gives Netflix Another Reason to Worry (Nasdaq: AMZN  ) keeps beefing up its streaming arsenal.

The leading online retailer has entered into a licensing agreement with MGM to add hundreds of classic movies and TV shows to the Prime Instant Video library that allows members of Amazon's Prime loyalty shopping program to stream more than 18,000 titles.

Yes, Netflix (Nasdaq: NFLX  ) clearly has the larger and better catalog, but Amazon Prime is cheaper.

The e-tailer charges Prime subscribers $79 a year for the membership that includes free two-day delivery on Amazon-warehoused items, free monthly Kindle rentals, and more.

The new deal with Metro-Goldwyn-Mayer Studios will add hit movies including The Silence of the Lambs, Dances with Wolves, and The Terminator to the service later this year. Cult fave Stargate will be one of the television shows offered.

Amazon isn't standing still here. It was less than a month ago that the company struck a deal with Viacom's (NYSE: VIA  ) Paramount.

For better or worse, Amazon is taking this initiative seriously. Investors know that Amazon is sacrificing near-term profitability for the sake of long-term market share. Margins continue to contract. Net sales may have soared 34% to $13.2 billion in its latest quarter, but it came at the expense of a 35% decline in earnings.

Taking a page out of Netflix's playbook, Amazon's Prime Instant Video library can be streamed through PS3 and Xbox 360 consoles. The streams are also available through smart televisions, PCs, and Kindle Fire tablets, but we all know that the final mile here is the living room. Consoles have tens of millions of Web-tethered users apiece, making it the perfect video streaming appliance.

For now, Amazon's presence hasn't slowed Netflix. The popular video service may be shedding DVD-based subscribers since last summer, but it's padding its count of customers paying $7.99 a month for unlimited streams.

Amazon doesn't mind giving this benefit away. Offering up 18,000 titles at no additional costs will make video buffs more familiar with its pay-per-view library that is now 120,000 titles wide.

Amazon knows what it's doing. Netflix better make sure that it also knows what Amazon is doing.

Gnaw something
Nine out of 10 of Amazon's best-selling items during the quarter were digital products. Clearly, the next trillion-dollar revolution will be in mobile, and Amazon isn't the only likely winner. A free special report will get you up to speed.

Longtime Fool contributor Rick Munarriz owns a first-generation Kindle and a Kindle Fire. He does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Netflix and Motley Fool newsletter services have recommended buying shares of and Netflix. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (2)

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  • Report this Comment On June 13, 2012, at 4:34 PM, ArbyWriter wrote:

    Amazon is also available on the Roku box, which IS in the living room. With Prime membership and $99 (or less) for a Roku, it can be considered to have conquered that last mile.

  • Report this Comment On June 13, 2012, at 5:17 PM, mattdavidian wrote:

    I haven't seen the Amazon UI on any other devices, but our Panasonic HDTV (purchased Dec 2010) has Amazon built in and it is just barely servicable. Things like navigation and searching are not as easy as on NetFlix. No queue management, no recommendations. The same titles are displayed on multiple pages within the same section when browsing, and many times titles show up in the wrong section (comedies in sci-fi, etc.). Prices are displayed on videos that are included in Prime Instant Video--why show prices if the video is free???

    As bad as the UI is, we still use it though as a complement to NetFlix. We have a Prime membership, not for the video, but for the shipping. If they increase the Prime Membership, or break it out separately from the shipping, well then we'll see if we keep the Amazon streaming service. This is something investors should consider; how long can Amazon include this Prime Video in the Prime Membership without raising prices?

    Personally I like their strategy, which seems to be getting users to purchase/rent content from their pay titles. Especially purchases, since this locks users into the Amazon ecosystem.

    Still, the options that Amazon offers are often lacking because of the movie studios. Often you can only rent movies in HD, and sometimes only during the pay-per-view rental window. For the most part you can only purchase SD movies on Amazon, I can't remember ever seeing a movie offered for purchase in high def. Vudu seemed to have much the same problem when I looked at their library.

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