Epix Deal Brings More Good News For Amazon, And Worry For Netflix

| About: Amazon.com, Inc. (AMZN)
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The fight for streaming video supremacy just got a bit more interesting. Netflix (NFLX) has had quite the head start, achieving significant popularity with its $8/month on-demand, unlimited streaming video service. The service was originally an offshoot of Netflix's cheap DVD rental service but has become far more profitable. For a while, Netflix was really the only game in town, but the arrival of Amazon.com's (AMZN) Prime Instant Video service signaled the emergence of a potential rival. Now, with the news that Amazon has signed a licensing agreement with Epix that doubles its movie library, Netflix is officially on notice. In addition to the shot in the arm to its Prime Instant Video service, Amazon is also rolling out its new line of Kindle e-readers as well as a new Kindle Fire in a Santa Monica, Calif., event this week. Given that Amazon just recently sold out of its current Kindle Fire model, this debut will be highly anticipated. Given these developments, I strongly recommend Amazon going forward.

Netflix could have a problem on its hands. It was smooth sailing for a while, but then there was the pricing change debacle. That, combined with some other decisions the company made, sent the share price plummeting. It's recovered a bit since, but this latest news of Amazon doubling its movie library - with a licensing deal that used to be held by Netflix, no less - is rather troubling. I've noticed that the longer somebody has had a Netflix subscription, the more they complain about the movie library. People seem to be pretty happy with the TV show selection, but the ratio of quality, name brand movies to B-movies is less than stellar. It'd be one thing if there was a nice independent movie selection, but for every solid indie flick there's three groan-worthy ones. This new deal between Amazon and Epix could give Amazon the upper hand going forward. Epix is owned by Lions Gate Entertainment (LGF), Viacom's (VIA) Paramount Pictures and MGM (MGM), which in turn own a wide variety of blockbuster hits, including the brand-new "Hunger Games," "Avengers" and "Iron Man 2." Bill Carr, Amazon's VP of video and music, touted the move.

"We are investing hundreds of millions of dollars to expand the Prime Instant Video library for our customers," Carr told the Wall Street Journal. "We have now more than doubled the selection of movies and TV episodes to over 25,000 titles in just under a year."

Investors would be wrong to dismiss Carr's comments as mere bluster. The rise of Amazon's Prime Instant Video has indeed been rather rapid, and Netflix better start expanding its content in turn or risk consumers getting the perception that Amazon offers higher quality content.

Another bright spot for Amazon comes in the form of its Kindle Fire. As mentioned before, the tablet computer recently sold out, and the new model is expected to impress. Kindle Fire has the advantage of being cheaper than its competitors, especially Apple's (NASDAQ:AAPL) iPad, which runs hundreds of dollars more. In addition, some expect the new Fire model to be a mere $150 if a rumored ad-support model ends up being effective. If this happens, it could be extremely beneficial to Amazon's sales, as even if the iPad has a price cut, in will still be far more expensive than $150, pricing some people out of it.

Lost in the Kindle Fire discussion is the fact that Amazon will also be rolling out its new e-readers, which will be much anticipated, as Amazon's e-reader expertise is highly respected. While a smaller market than tablet computers, Amazon can still be proud of putting out the premier e-reader on the market. Joshua Flood, market analyst at ABI Research, argues e-readers aren't going away either, despite the success of tablets.

"We believe there will always be a niche market for the dedicated reading device for voracious readers, business travelers and educational segments, particularly ones that are low-priced," Flood told the Associated Press.

As far as e-readers go, Amazon still has the competitive advantage. And if the new Kindle Fire is as good as expected, a $150 price point could be a game-changer. This, combined with the Epix licensing agreement, has this writer convinced Amazon has yet another solid stream of revenue going forward. With Amazon trading around $245, the chance to improve margins significantly on streaming movies combined with new Kindle Fire optimism and solid numbers, Amazon's numbers should be huge. Netflix is already down today, continuing its recent trend, and Amazon's Epix deal is a huge blow against it.

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

Business relationship disclosure: This article was written by a team member of Freedonia Freelance/Freedonia University