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Amazon Eyeing Prime Price Increase

30 Jan, 2014 By: Erik Gruenwedel

Probable price hike to Prime membership could pave the way for Netflix to up subscription fees

Amazon’s popular $79 Prime membership program could soon see a price hike by as much as $40 in the United States, CFO Tom Szkutak said in a Jan. 30 call with analysts.

The CFO said escalating fuel costs, increased product inclusions (now totaling 19 million items) and higher license fees charged by third parties for movies and TV shows, underscore the need for a hike — although no official decision has been made.

The Prime membership program was launched nine years ago with an annual $79 fee, which includes free two-day shipping and unlimited streaming access to about 40,000 movies and TV show episodes.

“With the increased cost in fuel and transportation, as well as the increased usage among Prime members, we’re considering increasing the price of Prime between $20 to $40 in the U.S.” Szkutak said.

The CFO said the fourth quarter saw a 26% increase in revenue for Amazon Prime. The sudden growth in the program resulted in Amazon halting new Prime memberships during the winter holidays. In addition, Amazon continues to see a migration from physical to digital in the dissemination of home entertainment.

“We don’t see it as much in our international [operations] because we are in the very early stages of that … as one of the key differentials between the international media growth rates and North American growth rates,” Szkutak said.

Amazon has not divulged Prime membership data — a tact underscored by Szkutak when he said the platform has “tens of millions” of customers worldwide.

“We haven’t had any [price] increase in the nine years, and customers certainly love Prime … with usage on a per-customer basis going up quite dramatically,” he said. “People are using it a lot more, which is why we are contemplating the increase.”

Indeed, video usage of Prime spiked last summer when Amazon began streaming episodes of CBS summer replacement series “Under the Dome” four days after broadcast. The series proved a ratings and revenue hit for CBS, which generated $700,000 of incremental revenue from Prime for each episode streamed.

Prime will once again this summer exclusively stream the second season of “Dome,” in addition to new sci-fi series “Extant,” starring Halle Berry.

A price hike could pave the way for Netflix to raise its $7.99 monthly fee and minimize the subscriber blowback it experienced in 2011 when the SVOD pioneer increased by 60% to $15.98 the monthly subscription fee on its hybrid disc/streaming rental plan.

Wedbush Securities analyst Michael Pachter — who believes Netflix will have to raise streaming fees in the near term — doesn’t necessarily think an increase to Amazon Prime would be a catalyst for Netflix to take immediate action.

“Largely unrelated. Prime is used to buy stuff far more than to view video,” Pachter said in an email.

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