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Netflix Stock Drops on Epix Streaming Deal With Amazon.com

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Jin Lee/Bloomberg/Getty Images

The online retailer will carry about 3,000 titles from Epix, as does Netflix.

Netflix shares sunk more than 6 percent Tuesday on news that Amazon.com would be muscling in on its Epix territory.
 
Amazon lets subscribers to its $79-per-year Prime discount-delivery service get streaming Internet content for free, and the deal with Epix will add about 3,000 movies to its selection, including blockbusters like The Avengers and The Hunger Games.
 
Netflix was paying about $200 million a year for exclusive streaming rights to Epix content, though the subscription service opted for a cheaper, non-exclusive relationship going forward, which opened the door for Amazon.

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On Tuesday, several Wall Street analysts weighed in, mostly saying the Amazon-Epix arrangement amounted to a competitive blow against Netflix.
 
“This deal puts a significant dent in hopes of a potential acquisition of Netflix by Amazon, given that the Epix content is among the most expensive and Amazon would not likely want to pay twice for the same content,” said Tony Wible of Janney Capital Markets. “With the Epix deal, competition will intensify for Netflix, particularly on the movie side.”
 
Anthony DiClemente of Barclays Equity Research said the deal is a boon to “the content industry as a whole,” plus, he lowered his price target on Netflix by $10 a share to $70. The stock closed $3.79 lower on Tuesday to $55.93.

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“We believe Netflix’s unwillingness or inability to pay up for exclusivity suggests that it may not have the capital necessary to bid for top quality domestic content,” wrote DiClemente, who estimated that Netflix will save $50 million annually by allowing its Epix deal to become non-exclusive.
 
Some of the more charitable commentary about Netflix on Tuesday came from Vasily Karasyov of Susquehanna Financial Group.
 
“While this is an incremental negative for Netflix, it’s hardly a lethal blow,” Karasyov said. Indeed, Netflix confirmed that the Epix content accounts for only about 5 percent of its customers’ viewing hours.
 
The Epix-Amazon deal, the analyst said, “validates Netflix management’s decision to produce original content which the company would control.”
 
Netflix can keep offering Epix content for streaming non-exclusively until August 2013 and has an option beyond that, as well, according to insiders.

Shares of Amazon fell 39 cents Tuesday to $247.88.