Frugal Amazon opens checkbook for streaming video

Amazon.com Inc's deal to purchase streaming movies from cable network Epix could transform the way such deals are done, thanks to a pay-for-performance sweetener that had not been previously disclosed.

According to an executive directly involved in the deal, Amazon agreed to an earn-out provision payable to Epix over time if the number of subscribers to Amazon's Prime Instant Video service rises above a certain threshold. That comes in addition to a fixed upfront fee, the basis for most subscription video-on-demand deals up to this point.

The generous terms of the deal, announced in September, provide the strongest evidence yet that Amazon is willing to pay up to be a player in this market as it faces a dwindling demand for DVDs - once its core entertainment offering - and tough competition for its Kindle Fire tablets.

Film studios and TV network executives, meanwhile, now have a worthy foil to play against Netflix - once the only major streaming player - and possibly a template for future deals.

This could be considered online video deals 2.0. After doing 1.0 deals mostly with Netflix and a few with Amazon, it dawned on the media companies that they may want to get a piece of any future growth too, said Goldman Sachs media analyst Drew Borst.

The deal with Epix - a partnership between Hollywood studios Paramount Pictures, Metro-Goldwyn-Mayer, and Lionsgate - was structured so studios could capture any rapid Prime Instant Video growth, according to the executive involved in the transaction.

Amazon did not respond to a request for comment on details of the deal. An Epix spokeswoman also declined to comment.

But Epix Chief Executive Mark Greenberg did say of Amazon: Internet delivery of content is a way in which a new, emerging younger audience wants to view content, and they know they can be a significant player in the space, we are happy to help them get there.

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