Even though consumers could end up paying more in the long term, Amazon.com (Nasdaq: AMZN) is betting they'll embrace a monthly $7.99 Prime Subscription that mimics what's already out there from Netflix (Nasdaq: NFLX) and Hulu.
Right now, Prime Instant Video subscribers pay $79 annually to get better shipping options, deals on Kindle books and unlimited instant streaming of movies and TV shows. The monthly $7.99 fee, quietly rolled out in trial this week, will be more competitive with Netflix and Hulu--both of which have $7.99 plans--and in the end will cost $95.88 annually, or $16 more than a one-time upfront payment.
The big differentiator for Amazon--and what could make the play a winner--are the peripherals that accompany Amazon Prime Instant Video, said Sean Kim, an analyst with RBC Capital Markets.
"For $7.99 on Amazon, you're getting less video [Netflix has more titles] but you're getting all this other stuff," Kim told Bloomberg, according to a story in Wall Street Cheat.
And that "other stuff" could be a big game changer as the online retailer gears up for the holiday season--probably explaining why the trial starts this month.
"Holiday shopping is extremely important for Amazon," Kim added. "Anything that can get more users to the website and use Prime is going to drive more sales."
Interestingly, Baird Equity Research analyst Colin Sebastian said in a research note to clients Tuesday that Amazon could, in the short term, lose money on the monthly pricing, even though in the long term it could reap more per subscriber.
"While one risk for Amazon is that consumers use Prime for just one month to take advantage of free shipping on large purchases, the test could also reveal that a ready market for alternative pricing, and serve as a new customer acquisition tool," Sebastian wrote, according to the Wall Street Cheat story.
- Wall Street Cheat had this story
Amazon ratchets it up a notch with Epix streaming movie deal
Amazon beefs up NBC streaming lineup