Can Amazon Afford This Spending Spree?

Although they are both dominant players in the market for Internet video streaming, Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) have some huge problems to solve this year. But despite whatever financial difficulties Amazon may have with its video service, it has started of the New Year with a massive purchase.

Amazon has 33,000 titles in its Prime Instant Video library, with an increasing amount of popular content that is not available on Netflix. On January 4, the Internet behemoth announced that it had licensed content from A+E Networks, which is partly owned by The Walt Disney Company (NYSE:DIS), adding prior television seasons from Lifetime, The History Channel, A&E, and The Biography Channel to its growing number of offerings.

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This agreement follows at the heels of a very active acquisition period for Amazon in the latter half of 2012. In September, the company signed a three-year deal with the Hollywood studio Epix, which added thousands of movies to its video library. The company also incorporated ESPN’s 30 for 30 series in August.

“In a year we have more than doubled the Prime Instant Video selection for our Prime members,” said Brad Beale, Director of Digital Video Content Acquisition for Amazon, in a press release distributed on Friday.

In comparison, Netflix has had difficulties adding content, and Amazon’s expanding catalog has been a contributing factor. Previously, Netflix held an exclusive contract with Epix, but it expired at the beginning of September. The expiration of the agreement was a blow, as many Hollywood studios prevent Netflix from offering their recent releases. The only exception to that rule had been Epix, which had allowed the company access to new-ish movies from Paramount (NYSE:SNE), Lionsgate (NYSE:LGF), and MGM. It also lost access to Disney and Sony (NYSE:SNE) movies provided by Liberty Media’s (NASDAQ:LMCA) premium cable channel earlier in 2012, and A+E Networks pulled its content in late September.

But Amazon may be paying a great deal to vanquish Netflix. Chief Executive Officer Reed Hastings estimated in November of last year that the company’s acquisitions were costing it a huge sum. Based on the cost of the content deals Amazon took away from Netflix, Hastings said that the Prime Instant Video service was losing between $500 million and $1 billion per year. However, there was no indication in the press release of how much Amazon’s A+E Networks agreement would cost.

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