Amazon to launch film streaming service

Amazon is developing a film streaming service that would compete directly with Netflix in a move that could have a big impact on the fortunes of Hollywood studios struggling to cope with declines in DVD sales.

The company is planning to bundle access to the service with Amazon Prime, a premium service that guarantees Amazon customers unlimited free shipping of books and other items sold by the online retailer after paying an initial fee.

Amazon could not be reached for comment on Tuesday evening. But it may have inadvertently revealed its plans by publishing a screen shot promoting the new service.

The screen shot, which appeared only briefly before being removed, was revealed by the Engadget tech blog. It contained text saying: "Your Amazon Prime membership now includes unlimited, commercial-free, instant streaming of 5,000 movies and TV shows at no additional cost."

A person familiar with Amazon's plans told the Financial Times that it had been working on the streaming service. This comes as Amazon is stepping up its efforts to compete with Netflix. It recently acquired Lovefilm, the UK DVD subscription service, for £200m.

Amazon already offers online movies to rent or to buy digitally. But Arash Amel, research director for digital media at IHS Screen Digest, a media consultancy, said the company had more to gain from digital subscriptions.

"Amazon is switching focus away from the rental business in favour of the subscription model which connects far better with its core, online retailing profit centre," he said.

"This is about keeping consumers in the Amazon environment while providing extra value ... providing subscription video is a far better way to do that than by selling digital downloads [of films]."

But Amazon faces an uphill struggle if it is to overhaul Netflix in subscription video. Netflix shares have risen almost fourfold in the past 12 months as the company has built a dominant position in online film viewing, giving Netflix a market capitalisation of $11.2bn. The California-based group has 20m subscribers to its DVD subscription service but has succeeded in migrating many of those viewers to the online service.

The growth of Netflix has changed the home entertainment landscape in the US. Blockbuster, the once-dominant DVD rental chain, filed for bankruptcy protection last year after finding itself unable to compete with the company.

Netflix has also begun to pay large sums for rights to Hollywood movies and last year agreed a five-year online streaming deal worth $900m with Paramount Pictures, Metro-Goldwyn-Mayer and Lions Gate Entertainment. This has delighted the studios, which have watched in despair as DVD sales have tumbled across the globe.

But Netflix's willingness to pay for digital rights and the vast library of content that ithas built has had a more negative impact on the pay-TV industry.

The number of people subscribing to cable TV in the US registered its biggest decline in 30 years in the third quarter last year as viewers cancelled their subscriptions in favour of web-based services such as Netflix.