(Reuters) - Video streaming service Netflix Inc, facing increasing competition from Amazon Inc, is beefing up its original programming menu through a deal with DreamWorks Animation SKG Inc, the maker of Shrek, Madagascar and Kung Fu Panda.
Netflix shares rose as much as 6 percent and DreamWorks shares as much as 7 percent in early trading on the Nasdaq.
DreamWorks said on Monday the multi-year deal, which involves more than 300 hours of programming, is a cornerstone of a major initiative to expand its TV production and distribution.
The companies did not disclose the value of the deal or the length of the contract, the biggest that Netflix has signed for original programming.
Wedbush analyst Michael Pachter, who believes that Netflix's original content deals are costly, said the 300 hours are probably mostly catalog shows. Netflix could be paying between $25 million to $50 million a year for shows from the DreamWorks catalog and more for new programming, he said.
Online streaming companies such as Netflix, Amazon and Hulu, and even chipmaker Intel Corp, are spending heavily on content as they fight for a piece of the fast-growing market for movies and TV shows delivered over the Internet.
Intel is in talks to buy content from media companies for its new TV service, offering to pay as much as 75 percent more than traditional cable rates, Reuters reported earlier this month, quoting sources familiar with the talks.
"The content ... should in part help to offset the gap in Netflix's children's content schedule created when it decided not to renew its agreement for certain content from Viacom's Nickelodeon Network earlier this year," Pachter said.
Netflix stopped streaming popular programming from Viacom Inc's Nickelodeon in May after a contract expired.
Amazon.com Inc wrote its biggest-ever check this month for a subscription-streaming deal, securing hundreds of mostly childrens' TV programs from Viacom for its internet video service.
Netflix, the industry's pioneer, is counting on winning new subscribers by offering original series such as the Kevin Spacey drama "House of Cards".
In addition, the company brought back the cult TV comedy series "Arrested Development" in May and allowed viewers to see each 15-episode in one sitting, harnessing the trend of viewers binge-watching TV series online and through DVDs.
Netflix will premiere the new DreamWorks shows in all territories where it operates. The first of the new series announced on Monday is expected to be available in 2014.
Netflix and DreamWorks said in February a series called "Turbo: F.A.S.T," based on the upcoming DreamWorks film "Turbo," will debut exclusively on Netflix in December.
Netflix shares were up 6 percent at $226.93 in late morning trading, while DreamWorks' shares were up 5 percent at $23.87.
(Additional reporting by Lehar Maan in Bangalore; Editing by Sreejiraj Eluvangal and Ted Kerr)