Why Amazon's Latest Content Deal Is a Big Deal

Amazon.com (NASDAQ: AMZN  ) is sparing no expense these days when it comes to beefing up its streaming video library. The world's largest online retailer surged more than 4% yesterday after revealing a new content deal with longtime partner CBS (NYSE: CBS  ) . The latest agreement would increase the CBS content offered to Amazon Prime customers through its streaming service. The timing couldn't be better.

Content is king
Competition is heating up in the digital video space, as more viewers switch from cable and DVDs to streaming. It seems everyone wants a piece of this growing market. But in the end, it will be the companies with the best content that will come out on top.

Even Coinstar (NASDAQ: OUTR  ) , the parent company of Redbox DVD kiosks, is throwing its hat into the streaming ring. Coinstar and Verizon Communications (NYSE: VZ  ) teamed up to launch Redbox Instant, which is currently in beta.

While this is outside of Coinstar's core DVD business, Redbox Instant should benefit from Verizon's FiOS on-demand network. Still, as promising as this joint venture sounds, both Amazon and Netflix (NASDAQ: NFLX  ) have a massive head start in the digital streaming market.

Amazon presses Play
Amazon now touts more than 140,000 movies and TV shows in its ever-growing content library. The company's recent deal with CBS will make shows such as America's Next Top Model and Everyone Loves Raymond available for the first time to Amazon Prime members.

The CBS contract follows up two earlier content deals for Amazon that give it exclusive rights to popular content including TV series Downton Abbey and Steven King's miniseries Under the Dome. Exclusive licensing deals such as these give Amazon an added edge over competitors. For example, a Netflix subscriber would also need to be an Amazon Prime member in order to stream episodes of Downton Abbey to their devices.

On that score, Netflix is aggressively pursuing its own exclusive titles and original content. Netflix's original flagship series, House of Cards was an instant hit for the company. Netflix now plans to roll out an in-house animated children's series based on the DreamWorks Animation studio film Turbo.

Between its new children's TV show and the recent exclusivity deal with Walt Disney, Netflix is neck-and-neck with Amazon for family audiences. This is why Amazon's recent content licensing deals are so important -- the success of Amazon Prime Instant Video depends on it.

However, let's not forget that Amazon too is in the early stages of developing its own original kid-friendly content. Specifically, Amazon Studios green-lighted production on five test pilots for children's shows.

Nevertheless, Amazon will need to continue adding exclusive and original content if it wants to keep pace with first-movers in the space, such as Netflix. Most viewers won't subscribe to more than one service, which means the stakes are high for Amazon, Netflix, and others as they battle for subscribers.

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