Inc. (AMZN) has inked a licensing agreement with Metro-Goldwyn-Mayer Studios (“MGM”). Per the deal, Amazon will feature MGM’s archive of films and TV shows in 2012 through its streaming video site — Amazon Prime Instant Video.

The online retailer has been consistently upgrading and promoting movies and television shows on its streaming video service. In June last year, Amazon signed a deal with CBS for broadcasting some of their classics. This was followed by Fox in September, and by Disney a few months later. This year, Amazon signed a deal with Viacom in February and Paramount Studios in May, taking its total number of videos to 17,000.

The latest deal with Metro-Goldwyn-Mayer Studios will expand Amazon’s already-large selection of movies and TV episodes available to customers as part of their Prime membership. The subscription cost for the Prime membership is $79 per year. The MGM catalog includes movies named – The Silence of the Lambs, Dances with Wolves, Rain Man, and The Terminator, and TV series like Stargate, which will further position the retail giant to take on video streaming rival Netflix Inc (NFLX) through its Amazon Prime service. Prime users can now view more than 18,000 movies and TV episodes on computers and digitally connected devices. However, Amazon still lags Netflix in this regard, since the streaming company has an online viewing library of 60,000 titles.

We believe that one of the key strategies for Prime Instant Video should be the expansion of its video archive. Netflix has seen the benefits of this action in recent times, in spite of its rate increases. However, Amazon’s vast offerings at discounted rates ($79 per year Prime shipping service versus the Netflix charge of $95 per year for its streaming video service) could create a price war in the digital delivery of movies. Amazon’s additional advantage is the stickiness of its customer base, since Prime offers several other advantages (related to online shopping for example) that Netflix is unable to provide.

Amazon is one of the leading players in an extremely fast-growing market. In the first quarter 2012 earnings announcement made on April 25, Amazon’s North America Media business declined by 14.2% sequentially, which was lower than expected, thus indicating that the Media segment remains one of the strongest contributors to growth. Management attributed the increase in revenue to the growing consumption of digital content across different categories because of the advantageous value proposition Amazon was able to provide to its customers.

However, competition from eBay Inc. (EBAY), Apple Inc. (AAPL) through its iBooks app, Barnes & Noble, Inc. (BKS) and Google (GOOG) remains strong.

Currently, Amazon has a Zacks #3 Rank, which implies a Hold rating in the near term.

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