Amazon has been one of the most disruptive forces in the retail industry. The company has taken over almost everything with its superior tech. In 2001, Jeff Bezos, the founder and CEO of Amazon said something that has since become a very famous quote. According to him, there were two types of retailers in the world: those that are always looking to increase their prices and those that are working hard to reduce them. Bezos added that Amazon would be the latter, a retailer that will try to charge less.
However, the online retailer has confirmed that it will be increasing its Prime subscription price. The company will raise the yearly price for Prime from $99 to $119. The new price will come into full effect on June 16th. This increase will boost Amazon’s revenue with an additional $2 billion, based on the revelation that the company has over 100 million Prime customers.
Despite this increase, Amazon has not clearly explained what extra value Prime users will get. Prime already has several important benefits including free shipping. Covering for these costs is not easy and perhaps Amazons sees the idea of raising the Prime subscription price as the right way to make the model profitable. Amazon is also competing with well-funded companies for its entertainment service offered through Prime. Companies like Netflix have purchased $8 billion in content in just a year.
With this competition, Amazon will have to pay more to secure the rights for media content and this could explain why the retail giant is looking to increase its revenue. Amazon has already spent $4.5 billion on non-sport content in 2017. This is half what Netflix spent during the same period but it’s still very high. The retail giant also has an upcoming “Lord of the Rings” show that will reportedly cost about $500 million. All this content is exclusive to Amazon Prime customers and it needs financing. In light of this, increasing the price for the Prime subscription seems like the only way.
Also, Amazon hasn’t been able to raise enough interest in pop-culture for some of its shows in the way that Netflix and Hulu have done. The popularity of Prime shows has been questioned. In fact, a report by Reuters revealed that Amazon’s Prime show “The Man in the High Castle” had attracted only 8 million viewers despite costing $72 million in production and marketing. The Reuters report also found that the show only brought in 1.15 million new subscribers. This would translate to a cost of $63 for each subscriber. When you consider that Prime clients pay $99 a year, you can understand why Amazon feels the need to increase this price.
Prime customers also receive grocery delivery through Amazon Fresh in various cities and are able to access Kindle Lending Library. It’s not yet clear what else Amazon can add for the extra $20. Most experts argue that it has to be something that will attract new subscribers as opposed to something that consolidates the current numbers. It looks like we will just have to wait and see.