Amazon's Paramount Deal A Big Content Booster

Jul. 7.12 | About: Amazon.com, Inc. (AMZN)

Whenever the subject of a discussion moves into the realm of digital media and owning a vast digital library for multimedia content, there is no doubt that Amazon.com (AMZN) takes second place behind Netflix (NFLX). Netflix had a staggering 60,000-item online library when Amazon was just attaining 15,000 titles earlier this year.

Amazon is set to give Netflix a good dose of competition, however, and it will probably grab a big chunk of Netflix's market share. This comes with the announcement that Amazon has made a three-year agreement with Paramount Pictures. The deal will lead to an increase in Amazon's online content, expanding to more than 17,000 movies and TV episodes with rollovers that may lead it to increase even beyond the present numbers within the next three years. The best part is that viewing the new content comes cheap, as a Prime membership has an annual cost of $79, which is lower than Netflix's annual cost of $95. For those looking to save money, therefore, Amazon offers the better price, which will continue to help the company compete with Netflix.

On another note, Amazon is set to move into another period of profitability with the steady rise in demand for mobile banking on tablets, as opposed to banking on mobile phones. A Javelin Strategy and Research study has shown that more and more people are particularly interested in banking on their tablets. Amazon's Kindle Fire places it firmly in the lead for meeting this demand, especially with Citibank's Kindle Fire app released earlier this year. Thus, we can reasonably expect Amazon to record increased sales, especially for its Kindle Fire.

We have not come to the end of the news on Amazon's Kindle, however, as recent news states that Amazon plans to build a bigger Kindle. This is somewhat funny, as Apple (AAPL) is presently more concerned about building a smaller version of the iPad right now. I guess that is just how business works. The story, which is not yet official, claims that Amazon has plans for a 10.1-inch Kindle while suspending plans for the 8.9-inch Kindle.

It may also interest you to know that Amazon is set to release a front lit monochrome e-reader in July. The news also claims that this new Kindle will use the e-ink's display. This is important to Amazon, as e-readers are becoming increasingly popular throughout the world. For example, one reporter notes how Vietnamese youth are commonly turning to e-readers instead of physical books.

Many consumers of Amazon's reader have been complaining about their inability to use it in the dark unless they make use of an external lamp. The new version uses front lighting, which will make reading easy even in the dark. This will surely receive a warm welcome from consumers. The best part is that the new Kindle is expected to be within the same price range as the original Kindle, and if its price does go up, the increase will probably not be more than $10. Thus, the new Kindle will provide consumers with an improved reading experience while being friendly to the wallet at the same time. This perfect mix is almost certain to increase sales for Amazon.

In what may look like bad news, regular retailers - more commonly referred to as brick-and-mortar stores - are pushing for more legislation that will see online retailers like Amazon collecting and paying state sales taxes. They claim that this is necessary in order to even the playing field between online merchants and store merchants. According to the news, online retailers were able to escape with over $11 billion annually in state sales taxes based on the data given by the National Conference of State Legislatures.

The proponents of increased taxation, however, may be in for a hard time in achieving their goals. They will need the support of Republicans, who at the moment are not interested in making any move that can be misconstrued as increased taxation. In fact, Senator Orrin Hatch - who happens to be the top Republican on the Senate Finance Committee - claims, "I'm against raising taxes, period." Thus, it may be a long time before brick-and-mortar retailers get the support they need for the legislation to go through.

Even if the legislation did pass, it remains doubtful that it will have any massive effect on the profitability of Amazon. For one, the fact remains that Amazon's profits are not primarily tied to its reduced tax obligations. On the contrary, Amazon has been able to remain profitable because it still stands tall as the leading online retailer, having less overhead costs than the traditional retailers do. I believe that a comprehensive understanding of the application of sales taxes will show that it has little or no effect on Amazon's bottom line.

It seems that the competitors of Amazon are not resting on their laurels and are working towards maintaining their competitiveness. For example, eBay (EBAY) has said that it is planning to employ literally thousands of people from the global workforce in the next three years as part of its plans to revolutionize commerce. The company revealed this when it received an award as one of the best workplaces. The award was from the Great Place to Work Institute. This will surely set it up to be a potential destination for innovative young minds. An ability to attract top talent will go a long will in helping eBay remain innovative, and this will surely give it a competitive edge in the market. This will help eBay stock remain stable over time.

Competition from other retailers remains strong, but Amazon is certainly not fading away. The new retailer legislation will not likely be passed. Even if it did pass, it would not hurt Amazon too much due to its continued strength. As Amazon is in a good place to take advantage of the demand for mobile banking on tablets and will also be releasing an improved e-reader in the near future, the company appears to be a strong one for investors to consider.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.