(Bloomberg ) Amazon.com Inc. (AMZN), the world's largest online retailer, has approached U.S. media companies to acquire rights for an online pay-television service, according to people with knowledge of the situation.
The service would expand on the Web retailer's Prime Instant Video subscription service by offering live programming similar to traditional pay-TV providers, said the people, who asked not to be identified because the talks are private. Amazon, based in Seattle, began reaching out to media companies in recent weeks, one of the people said.
An initiative by Amazon would bring to three the number of U.S. companies planning Web-based pay-TV businesses to challenge existing cable and satellite providers. Sony Corp. (6758) this month said it will offer an online service. Verizon Communications Inc. (VZ) said yesterday it will introduce a nationwide plan with technology acquired from Intel Corp. (INTC), expanding beyond its existing FiOS territories.
"We continue to build selection for Prime Instant Video and create original shows at Amazon Studios," Drew Herdener, a spokesman for Amazon, said in an e-mail yesterday. "We are not planning to license television channels or offer a pay-TV service."
Amazon advanced 1.9 percent to $407.05 yesterday in New York. The stock gained 59 percent last year.
The company has been moving into entertainment, competing with subscription-streaming leader Netflix Inc. (NFLX) with its $79-a-year Amazon Prime. The service offers unlimited viewing of 41,000 films and TV shows, including "Downton Abbey," along with free shipping on many items and book rentals to read on its Kindle tablet.
The company was planning to release a television set-top box that would stream video over the Internet into customers' homes, people familiar with the matter said in April.
The Wall Street Journal reported the talks with media companies yesterday.
Services from Sony, Verizon and Amazon would compete directly with traditional pay-TV. That could in turn prompt companies such as Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC) and AT&T Inc. to use the Web to expand from current geographic franchises and spark a national free-for-all for subscribers.
"To be successful, an over-the-top service, whether that's from Amazon or anyone else, will have to be incremental and not threaten to cannibalize media companies' existing business model," Jim Goss, analyst with Barrington Research Associates in Chicago, said in a phone interview.
Subscription-streaming services such as Amazon Prime, Netflix and Hulu LLC have been growing as viewers look to watch shows whenever they want on anything from a TV to smartphone.
U.S. revenue from digital video services increased by about one-third to $8 billion last year, while traditional television increased 4.9 percent to $150 billion, estimates Laura Martin, an analyst with Needham & Co.
"We believe that all video must think of itself as omni-channel, and therefore the nomenclature of TV content versus digital videos should merge," Martin said in a report.