Amazon.com raises price for Prime service

SEATTLE (MCT) – Amazon.com Inc. followed through on plans announced in January to increase the fee customers pay for its Prime subscription service, raising the annual membership by $20, to $99 a year.
Mar 14, 2014

SEATTLE (MCT) – Amazon.com Inc. followed through on plans announced in January to increase the fee customers pay for its Prime subscription service, raising the annual membership by $20, to $99 a year.

It is the first Prime price increase since Amazon introduced the service nine years ago. When Amazon said it was considering the move in January, it cited growing shipping and fuel costs as the reason. The company said it was looking at boosting the membership fee $20 to $40 a year.

An Amazon spokeswoman said that the price increase will begin March 20, when the company will start charging $99 a year for new memberships. Beginning April 17, existing Prime members will pay $99 to renew.

The more than 20 million Prime members get two-day shipping at no extra charge on more than 20 million items from the retail site. They also get access to Amazon Prime Instant Video, the company's Netflix-like streaming video service.

And if they own a Kindle e-reader, they can use the Kindle Owners Lending Library, which lets users borrow more than 500,000 digital books free with no due dates.

While the news was expected, it fueled a 2 percent surge in Amazon shares in early trading Thursday. Wall Street has long fretted over Amazon's thin margins. And a boost in Prime fees would likely increase the company's profitability.

In a research note, RBC Capital Markets analyst Mark Mahaney said the move should add $300 million to $400 million in additional operating income, which would translate to 45 cents to 55 cents a share in earnings.

And while some Prime members have said in surveys that they would drop the service if Amazon raised fees, most analysts don't believe the membership churn will be significant. Several point to Issaquah, Wash.-based Costco, which has seen few defections each time it has increased fees to its warehouse club.

"We see little likelihood of meaningful churn from the price increase," said Robert W. Baird & Co. analyst Colin Sebastian in a research note.

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