SAN FRANCISCO (Reuters) – Amazon.com Inc said on Wednesday that it had licensed thousands of television shows from CBS Corp, adding content to help the largest Internet retailer compete with giant video streaming company Netflix Inc.
The nonexclusive deal adds TV series that include "Frasier" and "Cheers," along with the "Star Trek" franchise, to Amazon's video streaming service.
Terms were not disclosed, but Barclays Capital analyst Anthony DiClemente said the deal was worth more than $100 million.
That compares to an agreement CBS previously struck with Netflix that was worth roughly $200 million over two years, with an option to extend.
Besides covering a shorter period, the Amazon deal has built-in "escalators" that will benefit CBS if a lot more customers stream its content, DiClemente said.
"Competition is ramping, and we believe Netflix may be more vulnerable now given its recent pricing changes," DiClemente wrote on Wednesday in a note to investors.
Netflix shares slipped 2 percent to $281.52 in afternoon trading, while Amazon declined 1 percent to $215.85.
The CBS content will mainly be available to Amazon Prime customers, who get free shipping and access to video streaming for a $79 annual membership.
The CBS deal increases the number of Prime instant videos to more than 8,000 from about 6,000, Amazon said.
Later this summer, "dozens" of CBS shows will also be available on Amazon's main Instant Video service, which offers more than 90,000 movies and TV shows to buy or rent.
For CBS, the deal is another way to make more money from existing content, Chief Executive Officer Leslie Moonves said in a statement. Barclays Capital said it would add 5 to 7 cents a share to CBS's earnings, based on a 70 percent profit margin.
The deal gives Amazon more digital content to sell. The company is a leader in digital books through its Kindle device and online bookstore. But it is branching out into more digital content, including apps and games, as well as video.
Later this year, Amazon plans to unveil a tablet computer that could help drive sales of digital content, the Wall Street Journal reported last week.
These moves increase competition with other digital content providers, including Apple Inc, Hulu and Netflix.
Netflix has about 10,000 videos on its streaming service and could have more than 30 million subscribers by the end of 2011, according to Barclays Capital analysts.
Amazon ended the first quarter with 137 million active users, however. Prime members account for less than 10 percent of those customers, according to Barclays Capital estimates.
JPMorgan analysts, led by Doug Anmuth, see Amazon's current streaming video offering mostly as a way to encourage more customers to sign up for the company's $79 Prime memberships.
"If Amazon were to invest aggressively in a stand-alone subscription video streaming product -- unbundled from Prime -- we believe it could make some headway, given Amazon's large existing customer base and potential for subscriber acquisition," Anmuth wrote in a recent note to investors.
Amazon is already spending heavily on fulfillment centers, its cloud computing business and the new tablet. A big expansion into streaming digital media will add to such costs and may pressure profit margins, DiClemente of Barclays Capital said Wednesday.
"While the bulk of costs related to this deal likely won't hit expenses until 1Q12, Amazon may be paying more for less as compared to Netflix," the analyst wrote. "We believe, however, that a content strategy is necessary for Amazon's tablet."
(Reporting by Alistair Barr and Lisa Richwine; editing by Andre Grenon and Lisa Von Ahn)
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