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Amazon Goes to the Video

The online retailer targets DVDs.

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is planning to expand its digital offerings this year with a service that will marry digital downloads and DVD sales, according to



The company is trying to convince independent film studios such Image Entertainment, Ardustry Home Entertainment and First Look Entertainment to provide content for the service, the trade publication says. Amazon spokeswoman Kristin Mariani declined to comment to the trade publication about the download service, which executives had discussed during its third-quarter earnings call in October. The company couldn't immediately be reached for this story.

As Seattle-based Amazon faces heightened competition from rivals including


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, the company is rolling out new features and services to maintain the interest of Web surfers. The company plans to offer a talk show hosted by comedian Bill Maher. Last year, Amazon unveiled plans to sell digital access to books by the page.

Amazon is considering several options for its service, including one that would allow people to download a digital copy of a film for free and then apply that charge toward a credit for a DVD purchase. Another idea is to allow someone to view a movie on their computer while they are waiting for a DVD that they've purchased to arrive,



"We have noted for some time that we believe Amazon to be uniquely positioned to benefit from the transition to digital media. The company owns and is the largest retailer of media products on the Internet," writes Scott Devitt, an analyst with Stifel Nicolaus who rates Amazon shares hold. "The company is also highly innovative, yet receives little credit from investors for this business characteristic, in our view."

Amazon's plans for digital media will be of interest to investors when the company reports earnings on Feb. 2. The company has said the holiday season was its best ever, but rivals including Wal-Mart also had strong online holiday sales. Quarterly revenue is expected to grow 21% to $3.08 billion, according to Thomson Financial. That's the smallest quarterly increase since 2001. Earnings per share are expected to be 21 cents.

Investors haven't shown much enthusiasm for Amazon lately because the company's plans to increase spending on its business are going to cut into near-term profits. Its shares rose 5.6% in the past year, largely because it was added to the

S&P 500

index in November. Only three Wall Street analysts rate the stock a buy, while 10 consider it a hold and eight a sell. Their average target price is $36.33, below the $45 level where it currently trades.

Amazon is benefiting from the soaring popularity of online sales, which comScore estimates rose 22% to $143 billion last year. Sales at Amazon gained an average of 26% during the first three quarters of 2005, but those benefits haven't translated to the bottom line, as net income fell 36% during that same time.