Amazon Raising Price Of ‘Prime’ Service To $99

Stock Up 2% As Online Retailer Boosts Annual Fee By $20

Shares in Amazon rose about 2% Thursday as the company announced that it is raising the price of Amazon Prime for U.S. subscribers by $20 – from $79 to $99 per year.

The decision comes after Amazon warned on its earnings call in late January that it was considering raising the price of its Amazon Prime subscription by $20 to $40 as the online retail giant grapples with escalating shipping costs.

The popular service features free two-day shipping and access to an expanding streaming library.

“Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years,” the company said in a message to Prime members that warned of the price increase that would be applied when accounts came up for annual renewals. “Since 2005, the number of items eligible for unlimited free Two-Day Shipping has grown from one million to over 20 million. We also added unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and a selection of over 500,000 books to borrow from the Kindle Owners' Lending Library.”

Students that subscribe to Prime get a price break -- $49 per year.

In January, Amazon CFO Tom Szkutak denied that that rising video licensing costs were among the drivers for the price hikes that Amazon was contemplating for Prime. However, the decision to raise the price coincidentally comes as Amazon expands its video library coming way of licensing deals and a growing selection of original content. Its Amazon Studios unit, meanwhile, plans to shoot all “full” original series being teed up this year in the 4K format. Amazon is also among the content providers that will deliver a package of 4K content to Samsung’s new line of Ultra HD TVs

Some analysts have expressed concern that Amazon risks losing valuable Prime customers by raising the price on a subscription-based service that is considered a tangential competitor to Netflix. Amazon has not revealed an exact subscriber figure for Prime, only going as far as saying that it has signed up “tens of millions” of them.

Bernstein Research analyst  Carlos Kirjner estimated recently that there are 20 million to 25 million U.S. homes with at least one Amazon Prime account, and 70 million U.S. homes with an active account.

Prime subs are especially valuable to Amazon. “Amazon's past disclosure that more than half of items shipped are sent to Prime users suggest that they…could spend 3-4 times what non-Prime Amazon homes spend,” Kirjner explained in that same research note.

But Amazon investors were apparently not worried about potential Prime defections coming way of the price increase. Amazon shares were up $7.84 (2.12%) to $378.48 each in late-morning trading Thursday.