Amazon and Epix strike movie deal; Netflix shares drop

US-AMAZON-EPIX:Amazon and Epix strike movie deal; Netflix shares drop

By Alistair Barr

(Reuters) - Amazon Inc and Hollywood studio partnership Epix struck a deal that adds about 3,000 movies to Amazon's video streaming library, ramping up competition with the likes of Netflix and Apple Inc.

The agreement gives Amazon Prime Instant Video subscribers access to such movies as "The Avengers," "Iron Man 2" and "The Hunger Games" from Epix studio partners: Viacom Inc's Paramount Pictures, Metro-Goldwyn-Mayer Pictures, and Lions Gate Entertainment Corp.

The Epix deal adds "thousands" of videos, said an Amazon spokeswoman who declined to comment further. About a week ago, Amazon said its Prime Instant Video service had more than 22,000 titles to stream. On Tuesday, the company said the Epix deal brought that number to more than 25,000.

Amazon is expected to launch at least one new version of its Kindle Fire tablet on Thursday. Lining up easy access to content such as movies for tablet users is part of Amazon's strategy.

"Content is king - and Fire's killer app," said Colin Sebastian, an analyst at R.W. Baird. "We expect new devices to provide further integration with Amazon's digital content platform and cloud infrastructure, with movies, books and music."

Netflix has been paying $200 million a year since 2010 for exclusive rights to Epix movies. The exclusivity expires this month, but Netflix will keep Epix movies on its service through September 2013. Netflix has the option to extend its non-exclusive use of Epix through September 2014.

Netflix shares were down 7.8 percent at $55.03 in afternoon trading.

"It gives Amazon Prime members a lot less reason to also have a Netflix subscription," R. J. Hottovy, an analyst with Morningstar, said of the Amazon-Epix deal.

In July, Netflix CEO Reed Hastings said he "wouldn't expect (Netflix) to be affected significantly" by Epix movies appearing on competing services.

"Epix is not a particularly large source of total viewing. Much more of our viewing is on our exclusives" such as TV shows "Mad Men" and "Breaking Bad," Hastings said during his quarterly conference call with analysts.

Epix accounts for about 5 percent of viewing hours on Netflix, company spokesman Joris Evers said.

Netflix shares may be weak because Amazon's deal with Epix makes an acquisition of Netflix by the world's largest Internet retailer less likely, according to Tony Wible, an analyst at Janney Capital Markets.

"This deal puts a significant dent in hopes of a potential acquisition," Wible wrote in a note to investors. "Given that the Epix content is among the most expensive and Amazon would not likely want to pay twice for the same content."

Amazon did not disclose the terms of the deal, but the company is "investing hundreds of millions of dollars to expand the Prime Instant Video library," Bill Carr, vice president of video and music at Amazon, said in a statement.

Earlier this year Apple began talks with Epix. Apple, whose iPad competes with the Kindle Fire, has been building content offerings for products that many believe will soon include a full-fledged TV set.

The deal with Epix, which brings Amazon's library to more than 25,000 titles, comes as Amazon is expected to unveil a new version of its Kindle Fire tablet this week.

Apple is holding a major event on September 12 and is expected to take the wraps off its latest iPhone.

(Reporting By Alistair Barr, Jennifer Saba, Lisa Richwine and Liana Baker; Editing by Maureen Bavdek and John Wallace)

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