Is Amazon Pricing Itself Out of the Streaming Video Market?

Why an increase in Amazon's Prime membership fees could boost Netflix.

Feb 2, 2014 at 12:25PM

Unlimited, super-quick shipping is about to get more expensive. Amazon.com (NASDAQ:AMZN) said last week that it might soon raise the price of its Prime membership service by between $20 and $40 from the current $79 annual fee.

Either way, the service should remain a fantastic deal for most online shoppers. But any price boost would make the retailer's streaming video service much less competitive with Netflix's (NASDAQ:NFLX).

Amzn Package

Still a great deal
Sure, Amazon has some strong reasons to raise its fees now. Prime members haven't seen an increase since the service launched nine years ago. Meanwhile, average shipping times have shrunk, fuel and transportation costs have risen, and the selection of Prime eligible products has skyrocketed.

But even more critically, average usage has spiked: Amazon shoppers are using the service so much that it surprised everyone from UPS (NYSE:UPS) to the online retailer itself last year. Despite forecasting a record holiday season, UPS saw its system overwhelmed by e-commerce shipments. And at one point in December, Amazon had to turn away new Prime subscribers because it didn't have the capacity to fulfill their orders. A heftier price tag might help keep subscriber growth to a more manageable pace for everyone involved.

But less of a threat
However, the economics aren't nearly the same slam-dunk as far as streaming video goes. Prime members get unlimited access to Amazon's streaming library, which, like Netflix's, has been adding exclusive and original content lately. Paying $79 a year, a Prime subscriber could easily overlook the fact that Amazon's library isn't as big as Netflix's, given that he or she is getting the service -- plus free shipping -- for what works out to about a dollar less than Netflix's $8 monthly plan. But at the new price point of either $8.25 or $10, that comparison is much less favorable for Amazon.

Netflix Redesign

Image source: Netflix.

Even small price changes can make a huge difference in this industry. Netflix learned that lesson the hard way after boosting membership fees in 2011: It hasn't changed its $8 plan since, which it described as "very price aggressive" even way back then. Yes, the company is beginning to carefully explore tiered service levels. But even though any changes should be small, Netflix has stressed that they will include extremely generous grandfathering policies for the company's 36 million existing members.

Foolish bottom line
Even at the current price, Amazon's Prime service hasn't slowed Netflix's growth. The company added 6 million members last year even as Amazon boosted its instant video selection from 33,000 to more than 40,000 movies and TV episodes while adding exclusive and original content. But a boost in Prime fees, while completely justifiable on the shipping side, will only make Amazon less competitive against Netflix.

Will Netflix make you rich?
Netflix has been a good stock lately, but there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Demitrios Kalogeropoulos owns shares of Netflix. The Motley Fool recommends Amazon.com, Netflix, and UPS and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers