Are Netflix's and Amazon.com's Price Hikes a Win for Investors?

Breaking down why Amazon.com and Netflix increased the cost of their respective streaming services and where all that cold hard cash is expected to go.

May 19, 2014 at 8:00PM

There are plenty of parallels between streaming first-mover Netflix (NASDAQ:NFLX) and Amazon.com's (NASDAQ:AMZN) Prime Streaming Video service.

Netflix has been around longer, but it hasn't taken Amazon.com long to establish its Prime Streaming service as one of the most powerful players in streaming media. Netflix and Amazon.com have also notched the most noteworthy wins in developing their own original content. 

Netflix Logo

Source: Netflix.

And recently, thanks to a series of moves from these companies, they share another trend: price hikes.

Is the price right?
Last week, Netflix announced that, effective immediately, it would increase the cost of its standard streaming membership for new members from $7.99 a month to $8.99, while also unveiling a cheaper option without HD streaming or the ability to use Netflix on multiple devices. This follows Amazon.com's March move to increase the cost of its Prime subscriptions to $99 per year from the original $79.

The culprit that's driving this pricey trend? Rising costs.

According to Netflix and Amazon.com, their respective price increases will be used entirely to deal with rising costs affecting their operations, instead of increasing profits for investors as some had hoped.

In the video below, tech and telecom analyst Andrew Tonner further examines the price hike news and what it means for investors.

3 great ways to play the "Death of Cable"
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Editor’s note: To clarify, the two-year period mentioned in the video refers to the delay of the price hike for current subscribers rather than a promise not to raise prices for new subscribers for two years.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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