Netflix stock drops on Epix-Amazon news

This post has been updated.

Investors reacted negatively to the news that the Netflix service would no longer hold exclusive rights to stream such movies as “The Avengers,” “The Hunger Games” and “Mission: Impossible.”

Netflix’s stock dropped nearly 7% in midday trading Tuesday on news that Amazon.com had reached a multiyear licensing agreement with EPIX that would add thousands of movies to its rival Prime Instant Video service.

The deal between Amazon and EPIX will more than double the number of entertainment titles available through the Prime Instant Video service since last September, when Amazon introduced the Kindle Fire tablet. Some 25,000 movies and TV episodes can be viewed through the subscription service, for which members pay an annual fee of $79 for instant access to video as well as unlimited two-day shipping of packages.

Some analysts predicted that the EPIX deal -- which adds movies from Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer-- will intensify competition for Netflix. Janney Capital Markets analyst Tony Wible noted that about half of Netflix’s customers subscribe to the service because of its movie collection.

Others observed that the Amazon deal is “hardly a lethal blow” to Netflix, because EPIX’s movies account for just a fraction (mid-single-digits) of the viewing in Netflix households, wrote Vasily Karasyov of Susquehanna Financial Group.

[Updated at 12:30 p.m. A Netflix spokesman said the company decided not to renew its exclusive deal with EPIX because the premium channel’s content is available elsewhere through TV Everywhere services that are offered to cable subscribers -- and therefore not truly exclusive. The programming accounts for only about 5% of viewing hours.

EPIX content will be available on Netflix until late August 2013, with an option for an extension.]

For Amazon, the announcement appears to set the stage for Thursday’s press event in Santa Monica, when the online retail giant is expected to announce the next generation of its Kindle line of tablets.

Barclays media analyst Anthony DiClemente predicted that Amazon will introduce at least three new devices -- including two new tablets and one eReader. The retailer claims it has captured 22% of tablet sales in the U.S., thanks in part to the popularity of its Kindle Fire.

An Amazon spokeswoman decined to comment on speculation surrounding this week’s announcement.

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