Amazon (NASDAQ:AMZN) has announced a three-year agreement with Paramount Pictures, a subsidiary of Viacom (NASDAQ:VIA), to source content for its online video streaming service Amazon Prime Instant Video. The new deal extends Amazon’s online library to more than 17,000 movies and TV episodes that users can watch on their computers and other digitally connected devices. Earlier in February this year, a deal with Viacom had expanded Amazon’s archive to 15,000 videos. 
Amazon competes directly with Netflix (NASDAQ:NFLX) in the online video streaming business. Netflix, however, is still far ahead of Amazon’s content library with 60,000 movies and TV shows. To gain share, Amazon has come out with a $79 per year subscription offering compared to Netflix’ $95 per year. Amazon hopes the lower price will draw customers away from Netflix .
The expansion of its video archive should be a good strategy for Amazon as it tries to expand its appeal to wider audience. However, Amazon should be careful not to fall into the same trap as Netflix of paying increasingly higher prices for content.
We currently have a $222 Trefis price estimate for Amazon which is near the market price. We will be updating our price estimates once Amazon reports its Q2 earnings on July 24th.Notes: