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Amazon.com Inc.(AMZN - Analyst Report) announced a content licensing agreement deal with NBCUniversal Cable & New Media Distribution Paramount Pictures, extending the archive of films currently available on its streaming video site, Amazon Prime Instant Video. Following the news, Amazon shares were up 1.88%, while Netflix (NFLX - Analyst Report) shares dropped $1.39% on Friday.

The online retailer has been consistently upgrading and promoting movies and television shows on its streaming video service. Amazon has entered into a number of deals this year. It signed a deal with Viacom in February, Paramount Studios in May and Metro-Goldwyn-Mayer Studios (MGM) in June, which took the total number of available videos to more than 18,000.

The latest deal with NBCUniversal will expand Amazon’s already-large selection of movies and TV episodes available to customers as part of their Prime membership. Amazon said that hundreds of episodes from TV shows like Parks and Recreation, Parenthood, Friday Night Lights, Heroes, and Battlestar Galactica will now be available on Prime. Prime users can now view more than 22,000 movies and TV show episodes on Kindle Fire, or compatible devices including iPad, Roku, Xbox 360 and PlayStation 3.

We believe that one of the key strategies for Prime Instant Video remains the expansion of its video archive. Netflix has seen the benefits of such an expansion in recent times, in spite of its instituting rate increases. However, Amazon's vast offerings at discounted rates ($79 per year for Prime shipping service versus Netflix charges 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 a steady customer base, since Prime offers several other advantages (related to online shopping for example) compared to Netflix.

Amazon is one of the leading players in an extremely fast-growing market. In the second quarter, Amazon’s revenue of $12.83 billion was better than the guidance and in-line with consensus expectations. 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 - Analyst Report), Apple Inc (AAPL - Analyst Report), Barnes & Noble, Inc. (BKS - Snapshot Report) and Google remains strong.

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

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