Is Amazon Crazy -- Like a Fox?

Butch Cassidy: "They'll never follow us."
Sundance Kid: "How do you know?"
Butch Cassidy: "Would you jump if you didn't have to?"
Sundance Kid: "I have to and I'm not gonna."
-- from Butch Cassidy and the Sundance Kid (1969) (NAS: AMZN) is making jumps that it hopes rival video streamers like Netflix (NAS: NFLX) and Dish Network's (NAS: DISH) resurrected Blockbuster won't follow.

This morning, the company announced it has inked a video licensing deal with News Corp.'s (NAS: NWSA) Twentieth Century Fox to add thousands of popular movies and TV shows to its Amazon Prime Instant Videos offering, including Paul Newman and Robert Redford's Western classic. A handful of other notable additions include The Last of the Mohicans, Mrs. Doubtfire, The Wonder Years, and one of my personal favorite TV shows, Arrested Development.

Prime's Instant Video offering now tops 11,000 titles available to members, more than twice the 5,000 available when the service debuted in February. A few short months ago, Amazon had brought the offering up to around 8,000 with a similar deal with CBS (NYS: CBS) . Meanwhile, Netflix just reached a new streaming deal of its own with DreamWorks Animation (NAS: DWA) after breaking things off with Liberty Starz (NAS: LSTZA) .

Even though Prime's streaming library remains much slimmer than Netflix's, the value proposition is already compelling and becomes even more so as Amazon aggressively grows its arsenal. At $79 annually, it comes out to around $6.58 per month, 18% cheaper than Netflix's monthly $7.99. Incidentally, I actually signed up for my free trial last night just to take advantage of the free two-day shipping, but I may just end up keeping the service for the Instant Video.

Amazon is pushing Prime hard and it's going to pay off. While bundling streaming video with free two-day shipping may seem like a crazy combo, it's actually brilliance in disguise. It all comes back to building a moat. Amazon Prime members pay for a service that makes it more likely for them to shop on the site, its core business. Throwing in the Instant Video on the house just makes Prime that much more appealing and indirectly encourages you to keep buying stuff, since it will arrive on your doorstep in two days for free.

Throw in Netflix's recent missteps and Amazon has a real opportunity here to steal the show. Netflix better be taking notes.

At the time this article was published Fool contributorEvan Niuowns shares of and hopes his free trial of Amazon Prime doesn't make him 1-Click trigger-happy, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Netflix, DreamWorks Animation SKG, and Fool newsletter serviceshave recommended creating a bear put spread position in Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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