CORRECT: 2nd UPDATE: Amazon Adds Streaming-Video Service For Prime Members

Amazon.com Inc. (AMZN) has launched an unlimited streaming-video service, bolstering the online retailing giant's position in the fast-moving online-video business and putting it in more direct competition with Netflix Inc. (NFLX).

Amazon, in an anticipated move, said it would make 5,000 movies and TV shows available for unlimited online streaming to U.S. members of its existing Amazon Prime offering, which costs $79 per year and includes free two-day shipping and reduced one-day shipping rates on items purchased on its website.

The Seattle, Wash.-based company already sells and rents movies online on an a la carte basis through digital downloads and streaming. Its new subscription service allows access to mostly older movies and shows from a variety of studios.

The offering comes as media companies try to adjust to consumers increasingly wanting to watch video online and puts Amazon as a direct competitor to Netflix, which recently reported its subscriber count exceeded 20 million in a sign of consumer demand for more online video. Amazon, by contrast, is believed to have about five million Prime users in the U.S, according to Piper Jaffray analyst Gene Munster.

"This is just a starting point for us," said Cameron Janes, director of Amazon's instant video service. "We expect to grow the category over time."

The move comes as Amazon continues to invest heavily in infrastructure and technology to expand its business, investments that are squeezing the retailer's bottom line and have disappointed investors. It remained unclear how aggressively the retailer would move to expand its streaming-video library.

"Investors will likely be concerned that this is just the beginning in terms of content costs," said Macquarie Capital analyst Ben Schachter.

Janes declined to comment on Amazon's prospects for competing with Netflix, saying the company is focused on providing its customers with a quality online video experience. The price of Amazon Prime undercuts the price Netflix's streaming service by about $17 per year, even before factoring in the shipping values included. Netflix, however, has a head start in the business, with stronger content offerings and a brand more closely associated with video entertainment.

Shares of Amazon recently slid 2.8% to $181.24. Netflix shares fell 6.0% to $221.25.

Other tech companies like Apple Inc. (AAPL) and Google Inc. (GOOG) have shown an appetite for investing in online video services, as the rise of digital media promises to transform the way filmmakers do business.

Netflix offers its streaming video service for $7.99 per month, providing access to some content just months after its DVD-release through deals with premium movie networks Starz Entertainment and Epix LLC.

Starz, which is owned by Liberty Media Corp. (LCAPA, LINTA, LSTZA), provides access to films from major studios owned by Walt Disney Co. (DIS) and Sony Corp. (SNE). Epix also offers timely content from its owners--Viacom Inc.'s Paramount Pictures, Lions Gate Entertainment Inc. (LGF) and Metro-Goldwyn-Meyer Inc.

Netflix's success also demonstrates the appeal of older library content from studios that makes up the bulk of its streaming service. Its success has raised concern in the industry that such low-cost movie services are weighing down the value of content at a time when online piracy is also damaging the business.

Some analysts believe that online video services will encourage consumers to go without a traditional pay-TV subscription, which provides a key revenue stream for major entertainment conglomerates.

Janes said the majority of the major studio content offered in Amazon's new streaming service is library content that is five to seven years old. Movies like "Syriana" and "March of the Penguins" are available from Time Warner Inc.'s (TWX) Warner Bros., while films like "Charlie's Angels" and "Stripes" are available from Sony Entertainment. It also has relationships with independent studios, like Music Box Films, which provides access to "The Girl With The Dragon Tattoo" film trilogy.

Amazon's a la carte service offers access to 90,000 film and TV shows, including more current fare.

Munster argued in a note that Netflix's aggressive push to partner with dozens of device makers--a push that has enabled users to easily watch streaming content on their TVs--has given the Los Gatos, Calif.-based company a significant lead in Internet-delivered entertainment. These devices include TVs, game consoles like Microsoft Corp.'s (MSFT) Xbox, Blu-ray units and streaming players like TiVo Inc.'s (TIVO) digital video recorders. Netflix content can also be streamed to mobile devices like Apple Inc.'s (AAPL) iPad and iPhone.

He forecast that there will be about 94 million Netflix-enabled, TV-connected devices in the market by the end of 2011, compared with about 21 million Amazon-enabled, TV-connected devices.

Amazon has also delved into publishing e-books through its Digital Text system, which allows writers to upload and sell manuscripts without professional editing that can be read on its Kindle e-reader.

Last month, Amazon reported its fourth-quarter earnings rose 8.3%, better than expected, as revenue jumped 36%, although the growth fell short of Wall Street's estimates.

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

-By Scott Morrison, Dow Jones Newswires; 415-765-6118; scott.morrison@dowjones.com

--John Kell contributed to this article.

Liberty Media Corp. - Liberty Cap Class A Common Stock (MM) (NASDAQ:LCAPA)
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