Amazon Challenges Netflix With Streaming Service

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Amazon on Monday amplified its competition with Netflix by offering Amazon Prime members the ability to stream videos at no extra charge.

"Millions of Amazon Prime members already enjoy the convenience of free two-day shipping," said Robbie Schwietzer, VP of Amazon Prime, in a statement. "Adding unlimited instant access to thousands of movies and TV shows at no additional cost is a great way to give members even more value for their $79 annual Amazon Prime membership."

Amazon Prime was initially a program that offered subscribers free shipping in exchange for the annual fee. Amazon says it has "millions" of Prime members but has not disclosed specific figures. In 2009, Piper Jaffray analyst Gene Munster estimated there are at least two million of them and that the program was growing at a rate of 24% per year.

Amazon has a ways to go before it matches Netflix's offering. Netflix has over 20 million subscribers in the U.S. and Canada and at least two-thirds of them use the company's video streaming service.

And Amazon's library of streaming titles (over 5,000) is significantly smaller than Netflix's (over 20,000). But that gap is likely to close over time as Amazon strikes more deals with movie studios.

Netflix investors appear to be considering that possibility. The company's stock was down almost 6% on Monday, about twice the percentage point loss of the Nasdaq and of Amazon.

However, Amazon may end up hurting itself if its competition with Netflix goes too well: Netflix pays Amazon Web Services for the IT infrastructure that supports its member Web site and Netflix-ready hardware like the Xbox, PS3, Wii, AppleTV, iPhone, and iPad.