February 22, 2011 / 3:08 PM / 9 years ago

Amazon takes aim at Netflix with streaming video

NEW YORK (Reuters) - Amazon.com rolled out a streaming TV and movie service for its prime customers, taking a direct shot at fast-growing rival Netflix.

Amazon announced on Tuesday that its prime customers, who pay $79 a year for free two-day shipping, can choose among 5,000 TV shows and movies such as “Syriana”, “Doctor Who: Season 4” and “Analyze This” to stream through computers and devices such as Roku. The streaming video service is available to prime members at no additional cost.

Netflix shares fell 5.3 percent in afternoon trading while shares of Amazon were down about 3 percent.

“We’ve have said for a long time that we expect someone to compete with Netflix,” Netflix spokesman Steve Swasey said. “When you have a big growing category it attracts competition.”

The move ramps up the battle among Netflix, Apple, Google and Microsoft, which are all vying to control the living room by letting people watch TV shows and movies directly from the Internet to televisions and other devices, such as tablet computers.

At the same time, these companies are trying to woo media conglomerates such as Time Warner Inc, Walt Disney, News Corp, Viacom and CBS for their TV shows and movies.

Media companies so far are cautious about allowing their content to be used on these types of services because they compete with cable operators that pay a premium to carry TV programs and movies. The fear is that people will drop pricey cable subscriptions — known in the industry as “cord cutting” — in exchange for streaming video offered by Netflix or Amazon for instance.

CBS and Netflix on Tuesday announced a two-year non-exclusive deal that allows Netflix to stream CBS library content including popular TV shows “Cheers,” “Frasier,” “The Twilight Zone” and “The Andy Griffith Show” to Netflix subscribers.

Amazon also offers Instant Video, a digital video service that offers customers more than 90,000 movies and TV shows to buy or rent on an a la carte basis.

“This offering from Amazon will not likely cause much of an exodus (if at all) from Netflix in the beginning,” Macquarie analyst Ben Schachter wrote in a note to Amazon investors. “This is a nice free additional service and should reinforce for Prime members what they love about Amazon.”

Netflix, traditionally associated with delivering movies and TV shows on DVD through the mail in bright red envelopes, is shifting toward streaming video.

Netflix’s total subscriber base now stands at 20 million and it said a majority of its U.S. subscribers stream content on a range of devices. Recently, it launched a streaming-only subscription plan in the United States for $7.99 a month for more than 20,000 movies and TV shows.

The relationship between Netflix and Amazon is a complex one: Netflix also relies on Amazon for its Web-hosting services. Netflix said in a recent government filing that it runs the majority of its computing through Amazon Web Service and warned that any disruption of that service would have an impact on operations.

“While the retail side of Amazon may compete with us, we do not believe that Amazon will use the AWS operation in such a manner as to gain competitive advantage against our service,” Netflix said in the filing.

Reporting by Jennifer Saba; Editing by Tim Dobbyn and Maureen Bavdek

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