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. (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.

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Demitrios Kalogeropoulos owns shares of Netflix. The Motley Fool recommends, Netflix, and UPS and owns shares of 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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