Amazon Mulls Raising the Price of Prime

/ Jan 31, 2014

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Amazon Prime, the online retailer’s subscription service that gives customers free two-day shipping as well as access to the Prime Instant Video service, might soon cost more.

Since launching in 2005, Prime customers have paid $79 per year for the service. In the company’s Q4 earnings call this week, CFO Tom Szkutak said Amazon is considering raising the price by $20 to $40 a year. If so, Prime would then average out to roughly $8.25 or $9.92 per month. Both numbers are above Netflix’s $7.99 rate for its regular subscription (which allows for streaming on two screens at the same time), though less than $11.99 you have to pay if you want to watch Netflix content on up to four screens.

Would this affect how many users sign up for Prime? Tough to say. Szkutak said that Prime subscribers number in the “tens of millions,” which everyone has taken to mean that it’s at least at 20 million. Even at that minimum level, that would roughly be half of how many subscribers Netflix has globally. Though it gets even more vague if you consider that not every Prime subscriber uses the video service, which has generally been viewed as an add-on to the main free-shipping benefit people sign up for.

Following that logic, most Amazon Prime customers would associate the price hike to shipping costs — and that’s exactly what Szkutak cited as the reason for potentially increasing the price.

Netflix has its own history with raising prices, having suffered mightily and famously in 2011 when it decided to split up the streaming and DVD-by-mail offering and raising prices 60%. Many customers left, and the stock plummeted. A few years later, Netflix is back in the good graces of both the public and investors, having just surpassed 44 million global subscribers.

Amazon’s move to raise the price of Prime could be seen as a win for Netflix, as both companies are increasingly locked in a struggle to bring in exclusive TV content that people want to watch. In fact, Amazon just inked an exclusive licensing deal with CBS for the upcoming Halle Berry-starring series “Extant,” and has similar agreements in place with the likes of PBS, Turner, Viacom, and other shows from CBS.

But Netflix is also considering pricing changes, a $6.99 single-stream option and a $9.99 plan for three streams. If it moves forward with those plans, the company would have two pricing plans that are more expensive than Amazon Prime, even if Amazon raises the price to $119 per year.

And again, Prime Instant Video is just one feature that (some) customers (knowingly) pay for when buying Prime. So until Amazon decides to split it off — which Szkutak refused to speculate on saying the company is happy with the service as it is now — it’s tough to determine how much of the costs are because of the content it’s trying to buy.

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