Why Amazon just splurged on Dora, SpongeBob, and Blue

Amazon $AMZN will pay hundreds of millions of dollars to license Viacom’s popular children’s programming, from Dora the Explorer to Blue’s Clues to SpongeBob SquarePants, in a record-setting deal. The shows will be available on Amazon Prime, the company’s competitor to Netflix $NFLX and other streaming video services. Some takeaways:

• Competing with Amazon is brutal. Netflix, which is trying to improve its profit margin, declined to pay Viacom’s steep asking price for the same content. But Amazon famously operates much of its business at a loss—or as Matt Yglesias put it earlier this year, “Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.”
• Kids rule streaming media. We hear that plenty of adults watch TV, too, but at the moment, the hottest competition is for shows beloved by children. ”You made my three-year-old daughter cry,” complained one typical Netflix customer after Dora and other Viacom kids’ shows disappeared from the service. (Netflix quickly added children’s programming from Viacom’s rival Disney $DIS.) Both Amazon and Netflix offer kids-only versions of their products, in a nod to their role as babysitting tools for many of their customers.
• Exclusivity is king. When Target $TGT, the American retailer best known for big-box stores, has a streaming video service, it’s clear that any sizable company with an interest in the field could start one. But the differences are in their catalogs, which is why Amazon acquired exclusive rights