Amazon is raising the price of its Prime free-shipping program for U.S. members — which includes access to the unlimited Prime Instant Video service with thousands of titles — from $79 to $99 per year.
It might have been an even bigger increase: Amazon had said it was considering a 50% jump, to $119 annually.
“For the first time since it was introduced nine years ago, the price of Prime is going up,” the company said in a notice on its website. Amazon also is notifying Prime users via email about the change. The service offers free two-day shipping for millions of products, with other benefits including “tens of thousands” streaming-video titles.
Amazon didn’t provide an explanation for the 25% hike in the customer notice. On the eretailer’s fourth-quarter 2013 earnings call in January, CFO Tom Szkutak said Amazon was considering raising the cost of Prime in the U.S. by $20 to $40 per year, citing shipping costs and increased usage of the program.
U.S. Prime users spend around $1,500 per year on merchandise, compared with $500 for non-Prime users, according to estimates from Bernstein Research analyst Carlos Kirjner. Over the past six years, Amazon Prime’s ordering and shipping costs have risen, cutting the upside of the service from $65 per user per year to $34 per user per year, Kirjner estimated in a Feb. 28 research note.
“Amazon would come out ahead if a price increase led to a defection of fewer than 50% of Prime users,” Kirjner wrote, noting that he wouldn’t expect a large number of users to cancel their subscriptions after a price hike.
Over the past year, Amazon has been bulking up the content selection in Prime Instant Video, including several exclusive subscription VOD deals, as it tries to build a credible rival to Netflix. Those include exclusive streaming rights for PBS’s “Downtown Abbey,” CBS’s “Under the Dome,”, FX’s “The Americans” and the TV series “Veronica Mars.”
Amazon also has expanded its roster of original series for Prime Instant Video, and recently ordered four new series: supernatural thriller “The After” from Chris Carter (“The X-Files”); cop drama “Bosch” based on Michael Connelly’s Harry Bosch series; comedy “Mozart in the Jungle”; and dark family comedy “Transparent,” written and directed by Jill Soloway (“Six Feet Under,” “United States of Tara”).
But while Amazon has been writing bigger checks for Prime Instant Video content, Szkutak specifically denied that TV and movie licensing pacts were a factor in the move to increase the Prime subscription price. “Certainly video, Prime Instant Video we are investing (in) very heavily, and so those are certainly costly,” he said on the January earnings call. But, he said, “Those aren’t the reasons for the price increases that we’re contemplating.”
Meanwhile, Amazon last month said it would merge its two subscription services in the U.K. and Germany — Amazon Prime and Lovefilm Instant video — and raise the price of Prime in those countries. In the U.K., Amazon Prime is now £79 ($132) a year, up 61% from the previous £49 annually while the company noted the new price is a 35% savings compared with the price of the two previously separate services. In Germany, the new combined Prime service costs €49 per year ($67.20), a 69% increase from the previous €29 for the free-shipping program.
As of the end of 2013, Amazon said it had “tens of millions” of Prime users worldwide, which implies at least 20 million members. The company offers Prime in countries including the U.S., Canada, the U.K., Germany, France, Japan, Spain and Italy.
In the U.S, existing Prime members will pay $99 per year on their annual renewal date, while and Amazon Student members will pay $49 for the program, the company said.