Amazon.com’s battle with Netflix to land streaming-video rights is costing the e-retailer millions — but Amazon claims those costs are not figuring into a potential 25% to 50% price hike for the Prime free-shipping program.
CFO Tom Szkutak, on Amazon’s fourth-quarter earnings call Thursday, announced that the company is contemplating raising the cost of Prime in the U.S. by $20 to $40 per year — up from $79 currently, a price point that hasn’t changed since Amazon debuted the program in 2005.
Szkutak cited shipping costs, and noted Prime members are ordering more items with free two-day shipping: “Even as fuel and transportation cost have increased, the $79 price has remained the same.”
Meanwhile, there’s no doubt that the costs associated with Prime Instant Video are climbing as usage on the service has grown and more content comes into the pipeline. Amazon recently has cut deals with CBS, NBCUniversal, Turner, Warner Bros. Domestic TV Distribution, PBS and Viacom, among others. Plus, the Amazon Studios arm is continuing to invest in content, gearing up for a wave of kids’ series launches and a second round of pilots.
Amazon vaguely says it had “tens of millions” of Prime users worldwide as of the end of 2013. That implies at least 20 million members. But the company offers Prime in many countries, including Canada, the U.K., Germany, France, Japan, Spain and Italy, so it’s not clear how many U.S. subscribers it has. Regardless, Amazon’s streaming-content costs are without question on the rise.
Szkutak, however, specifically denied that TV and movie licensing pacts are part of the consideration: “Certainly video, Prime Instant Video we are investing (in) very heavily, and so those are certainly costly. Those aren’t the reasons for the price increases that we’re contemplating.”
It’s worth noting that if Prime increased to $99 annually, that would be $8.25 per month — just a 26 cents more than Netflix’s $7.99 price point.
Netflix, meanwhile, is pondering its own price moves. The company last April introduced a four-concurrent stream “family” plan at $11.99 per month, and in late 2013 began testing two additional options: a $6.99 single-stream, standard-def only plan and a $9.99 three-stream variant. The $7.99 plan provides up to two concurrent HD streams.
Szkutak also was asked whether Amazon would at some point offer Prime in different tiers — and whether the company would break off Prime Instant Video as a standalone service. He wouldn’t take the bait. “I wouldn’t speculate,” Szkutak replied. “We might or might not do in the future, but we like the Prime program where we have invested very heavily in it.”