Amazon Prime targets Netflix with monthly fee

Streaming video costs grows as the retailer's competition with Hulu and others heats up.

By Jason Notte Nov 6, 2012 2:41PM

Amazon.com logo copyright Spencer Platt, Getty ImagesIf 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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16Comments
Nov 6, 2012 7:52PM
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I love Amazon, but if the Prime Account annual fee (monthly fee) goes up, then I cancel my Prime Account.  Too many things and services are rising; it is time we customers say NO MORE COST INCREASES!
Nov 6, 2012 5:32PM
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Hmmm an increase in my Amazon Prime account membership fee....I think Netflix tried this and lost millions of dollars. IF & when I get the notice from Amazon my Prime membership account fee is going up... could be a flip of a coin WHETHER I RENEW IT!  The only way us (99%) can stop corporate greed is via boycotting price gouging of products/services!!
Nov 6, 2012 6:38PM
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Wow, poor Netflix.  I have Netflix and stayed through the change.  It had an interesting impact on my watching.  I now watch movies that are great but aren't talked about in media much.  I have found some new actors and movies I love that I never would have had the " more popular shows" been streaming.  

I actually kind of like watching shows I haven't heard or seen before.  Netflix is perfect for downtime before sleep and their customer service has always been great.  

I don't feel as though I have less, I feel as though I am experiencing great movies which may never have been on my screen if Netflix hadn't changed.  It has helped me to change by viewing these less know movies.  

Amazon and everyone else learn a lesson and stay away from NETFLIX
Nov 6, 2012 5:23PM
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Amazon should stay away from this venture. Don't get me worng I have a Amazon Prime, Hulu Plus, and a Neflix. For video streaming I prefer Netflix. Amazon needs competition otherwise they could charge more if they killed off Netflix.

I like Amazon for the free two shipping and the once in awhile video I find that Netflix doesn't have. I also like their kindle library, but if they want to take someone why not VUDU Wal Mart' s streaming service. Vudu charges too much for new releases period.

Nov 6, 2012 5:08PM
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Amazon is fine but a lot off the  tv show I can see for free on Hulu you have to pay 1.99 to see  one chapter on Amazon at lease Netflix  has other movies I like to see .If  Amazon was to do like Hulu I will not mind having all 3 the  cost is still  less that cable.

Nov 6, 2012 5:53PM
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Hmm...  I seem to recall another company raising their price only to see their stock tumble by a couple hundred dollars. 
Nov 6, 2012 5:27PM
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Amazon streaming videos do not have a subtitle option - that is a slapo in the face to the hard of hearing.
Nov 7, 2012 12:07AM
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I don't know why this reported as competition to Netflix when netflix selection of TV and Movies are all inclusive! Amazon Prime is a pain as you see shows and movies listed on their site but they require you to pay additional rent as they not available for Prime subscription... also it's much slower then netflix when you do find something to watch.
Nov 10, 2012 10:46AM
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Amazon Prime uses the same business model as the guy in High School that gave you a great deal on your first joint.
Nov 9, 2012 6:32AM
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If AMazon raises their Fee from $79, I WILL DROP my prime account.

I use Prime only for the free? two day shipping.

Nov 9, 2012 8:08PM
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Amazon is offering both Prime options....no need to worry that prime is going up, those that pay 79 a year it wont change.  this article has it wrong.
Nov 9, 2012 8:08PM
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I currently have netflix, streaming only, and A mazon Prime. I enjoy them both, but I wish Amazon would offer closed captioning. Netflix offers it for most of their content, however I wish they would use white lettering instead of yellow. Sometimes you cant read the yellow. All in all paying 16.00 a month is still apretty good deal. You would pay way more to go to the cinema for one night and one movie. Most movies are mostly renters anyhow.
Nov 9, 2012 10:43AM
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I for one would be more likely to get Prime if it was a low monthly fee as opposed to the flat $79, even if it ended up being more over the course of a year.  Comparing that change to the one Netflix imposed seems a little ridiculous.
Nov 6, 2012 5:15PM
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why do away with cable tv when it costs just as much for just internet which you need to stream netflix and amazon.thats how cable companys stay relevant.bundles are cheaper then one service.i paid 75 bux for just internet but only pay slightly more for the bundle with phone service 200 cable channels hbo cinemax etc....and still pay for netflix too.i use them all.
Nov 6, 2012 4:38PM
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I truly love my Amazon Prime account.  For 80 bux a year, it's truly a bargain.  I'm very interested in this 7.99 subscription.  I've cancelled Netflix a while ago because I felt that the content available for streaming was too aweful. Amazon Prime had almost the same kind of streaming available before this 7.99 per month subscription.  I hope Amazon takes ove rthe world.
Nov 6, 2012 4:29PM
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How much longer can Amazon survive? 
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