UPDATE: Amazon Adds Streaming-Video Service For Prime Members

Amazon.com Inc. (AMZN) has launched a streaming-video subscription service, bolstering the online retailing giant's position in the fast-moving online video business and putting it in more direct competition with Netflix Inc. (NFLX).

Amazon, in an anticipated move, said it would make 5,000 movies and TV shows available for unlimited online streaming to members of its existing Amazon Prime offering, which costs $79 per year and includes free two-day shipping and reduced one-day shipping rates on items purchased on its site.

The company already sells and rents movies online on an a la carte basis through digital downloads and streaming. Its new subscription service allows access to mostly older movies and shows from a variety of studios.

The offering comes as media companies try to adjust to consumers increasingly wanting to watch video online and puts Amazon as a direct competitor to Netflix, which recently reported its subscriber count exceeded 20 million in a sign of consumer demand for more online video.

"This is just a starting point for us," said Cameron Janes, director of Amazon's instant video service. "We expect to grow the category over time."

Janes declined to comment on Amazon's prospects for competing with Netflix, saying the company is focused on providing its customers with a quality online video experience. The price of Amazon Prime undercuts the price Netflix's streaming service by about $17 per year, even before factoring in the shipping values included. Netflix, however, has a head start in the business, with stronger content offerings and a brand more closely associated with video entertainment.

Shares of Amazon recently slid 1.8% to $183.20. Netflix shares fell 4.9% to $224.

Other tech companies like Apple Inc. (AAPL) and Google Inc. (GOOG) have shown an appetite for investing in online video services, as the rise of digital media promises to transform the way filmmakers do business.

Netflix offers its streaming video service for $7.99 per month, providing access to some content just months after its DVD-release through deals with premium movie networks Starz Entertainment and Epix LLC.

Starz, which is owned by Liberty Media Corp. (LCAPA, LINTA, LSTZA), provides access to films from major studios owned by Walt Disney Co. (DIS) and Sony Corp. (SNE). Epix also offers timely content from its owners--Viacom Inc.'s Paramount Pictures, Lions Gate Entertainment Inc. (LGF) and Metro-Goldwyn-Meyer Inc.

Netflix's success also demonstrates the appeal of older library content from studios that makes up the bulk of its streaming service. Its success has raised concern in the industry that such low-cost movie services are weighing down the value of content at a time when online piracy is also damaging the business.

Some analysts believe that online video services will encourage consumers to go without a traditional pay-TV subscription, which provides a key revenue stream for major entertainment conglomerates.

Janes said the majority of the major studio content offered in Amazon's new streaming service is library content that is five to seven years old. Movies like "Syriana" and "March of the Penguins" are available from Time Warner Inc.'s (TWX) Warner Bros., while films like "Charlie's Angels" and "Stripes" are available from Sony Entertainment. It also has relationships with independent studios, like Music Box Films, which provides access to "The Girl With The Dragon Tattoo" film trilogy.

Amazon's a la carte service offers access to 90,000 film and TV shows, including more current fare.

Amazon has also delved into publishing e-books through its Digital Text system, which allows writers to upload and sell manuscripts without professional editing that can be read on its Kindle e-reader.

A blog report last month had fueled talk about Amazon's plans to launch the service to compete with Netflix.

Last month, Amazon reported its fourth-quarter earnings rose 8.3%, better than expected, as revenue jumped 36%, although the growth fell short of Wall Street's estimates.

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

--John Kell contributed to this article.

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