Date: Tuesday, February 4th, 2014, 08:46
Category: Amazon, Business, Finance, Opinion, Services
Last Thursday, Amazon reported their holiday quarter earnings and things didn’t look good. Their overall revenue was up 20% at $25.59 billion but analysts expected sales to come in at just over $26 billion. This sounds very similar to the report of Apple’s earnings, which were good, but given the thumbs down for not meeting analysts’ expectations? Unfortunately, Amazon’s net income of $239 million missed estimates by a huge margin. During the call, Amazon cited the rising cost of fuel and transportation for the increase, as well as the high frequency of orders from Prime members. As a result, Chief Financial Officer Tom Szkutak suggested that it may raise the price of Amazon Prime memberships between $20 and $40 per year (currently $79), bringing the total annual cost of the service up to as much as $119.
Current Amazon Prime benefits include:
- FREE Two-Day Shipping on millions of items
- No minimum order size
- Unlimited instant streaming of thousands of movies and TV shows with Prime Instant Video
- Read free books each month through Kindle First and the Kindle Owners’ Lending Library
I am an Amazon Prime member currently, and I make judicious use of the first two benefits, but the other two, not so much. Most of the people I know with memberships are the same way. I probably order way more than I should in part because of the free shipping. The last two, Prime Instant Video and the free Kindle books, I treat as throw ins, like the concierge service many people get with their credit cards and never remember they have. Between Netflix, Hulu Plus, and other streaming services, Prime Instant Video rarely has anything available I want that isn’t available elsewhere. Not long ago, Amazon started creating content only available through their service, the first being the political comedy Alpha House, starring John Goodman, along with another show about start-ups aimed at a young adult audience (Betas – sensing a Greek theme here), and three more which are children’s shows. Amazon reviewed 9 other shows that didn’t make the cut.
Honestly, if Amazon is offering those choices as an incentive to buy into Amazon’s video streaming service, I don’t think they have much of a chance of drawing in many new subscribers, even if they spun it off into a separate, lower-cost service like Netflix. Then again, I don’t claim to have my finger on the pulse of the greater TV watching audience, since I still find it hard to believe anyone actually watches Duck Dynasty or Here Comes Honey Boo Boo. Add to that the fewer ways of accessing Amazon’s content. Of all the A/V devices I have, only one gives me access to Amazon Prime Video (other than my computer of course) which is my Playstation 3. To date, there is still no channel for the Apple TV to access it. Perhaps I’m in the minority not having a Roku box, which does have access, but there are still more options for competing services.
Regardless of the individual value of these services, any price increase is going to make customers take a second look at whether their subscription represents money well spent. You can’t really blame Amazon for wanting trying to offset current economic increases and make a profit, but maybe they are looking in the wrong direction. How much is Amazon spending on Amazon Prime Instant Video? Is it justified? Does Amazon really need to be in the video streaming sandbox when they have their toes in so many other things?! Time will tell, and further exploration into those questions will have to wait for another post.