If Amazon (AMZN) can't buy Netflix (NFLX), the least the online retailer can do is run its streaming video competitor into the ground.

According to Ad Age, Amazon is testing a $7.99 subscription plan for its Prime membership that bundles expedited two-day delivery for online purchases, free streaming of TV shows and movies and the right to borrow one free e-book a month from Kindle's Lending Library. 

This isn't such a great deal for existing Prime customers, whose $80-a-year fee just increased to $96 for the same annual service, but it puts Prime's price on par with the $7.99 charged per month by both Netflix and Hulu Plus, which is a joint venture of News Corporation (NWS), Disney (DIS) and Comcast (CMCSA).

Why is that parity so important to an online store? A survey released by TVGuide.com last month found that 42% of TV viewers reported watching more streamed content this year than last year. Though 73% did so just to catch up on their favorite shows, 8% did so because they were cutting back on cable and 10% had canceled cable and satellite altogether.

Analysts are predicting that nearly 420,000 video subscribers will do away with pay TV this quarter, a jump from the 400,000 subscribers Sanford C. Bernstein says cable and satellite providers lost in the second quarter and the 348,000 IHS Screen Digest says they lost during the same quarter a year ago.

Even if those folks stick with cable, but still pay for Netflix, Hulu Plus, Apple (AAPL) iTunes and Amazon Prime, 30% reported that they're watching more of those streaming-video services now than they did in 2011. A whopping 68% are watching between one and five hours of video per week on tablets and mobile phones.

That's a whole lot of growth potential that Amazon can ill afford to pass up. The company reported its first quarterly loss since 2003. Meanwhile, Netflix's earnings plummeted 88% last quarter from a year ago as content costs jumped from $3.5 billion to $5 billion during the same span. That has Netflix management speculating that net-income losses early next quarter could be as much as $13 million.

Amazon has been closing in on Netflix by expanding content offerings and ending Netflix's exclusivity with content providers like the Epix movie channel. Rumors that Amazon might buy out Netflix were silenced not only by Amazon's latest losses -- which included a $169 million loss on its investment in discount website LivingSocial -- but by Netflix's recent share strategies. Investor Carl Icahn recently took a 10% stake in the company and suggested it be consolidated, with Amazon as the likely buyer. Netflix responded by adopting a "poison pill" that would flood the market with shares if any one person or group held more than 10% of the company.

To the consumer, Icahn's proposal wouldn't have been such a bad deal. While Netflix and Amazon streaming services are accessible from many of the same devices, there are still layers of exclusivity that force some consumers to choose between the two. An Amazon buyout of Netflix would have not only consolidated their libraries, but opened up access to each service.

Recent moves not only made such a deal unlikely, but forced Amazon into a position where it has to compete directly with Netflix and Hulu at the same price for its streaming service to succeed or even survive. With Netflix recently insinuating that it is steering away from movie content in favor of more commercial-free episode-style offerings, Amazon has an opening.

Will movies, delivery deal and e-books be enough to make its streaming service stand out? That's a $16-per-customer bet Amazon is willing to make.

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