Why Amazon ‘Unbundles’ Prime and Video: Faster Prime Adoption, Easier TV Expansion

Amazon Prime Video

Amazon Prime has become a main driver for Amazon’s business. And a main driver for Amazon Prime adoption is the streaming service Prime Video. I called Prime “a prime bundle” in my analysis last year.

In the U.S. Prime adoption is already very far ahead. New data from a survey (6.500 U.S. teenagers) by Piper Jaffray:

Amazon Prime adoption has increased across all income brackets in each of the past five surveys with this survey indicating Amazon Prime exists in 51% of households of the teens in our survey. This survey, along with other previous Piper Jaffray consumer surveys, suggests that there are 57-61 million Prime households in the U.S.

And Business Insider has more (very relevant) context:

The penetration is highest, and growing fastest, among upper-income households with more than $112,000 a year in annual income — more than 70% of households in that demographic have a subscription, up from less than half two years ago.

So, given such a strong stand, how can Amazon increase the reach of its bundle offer even further?

For one, by seemingly unbundling the two main parts and making it easier for people to try out Amazon Prime and thus addressing households that may be reluctant to pay $99 per year without experiencing the benefits first.

So, Amazon just launched new monthly plans for Amazon Prime and for Prime Video as a stand alone service. Wired:

Starting today, the company is launching two new subscription plans: a monthly Prime membership plan for $10.99 and a monthly Prime Video membership plan for $8.99. Neither subscription requires an annual commitment.

The monthly Prime plan will include all of the same benefits you’d normally get with an annual Prime plan, including two-day free shipping. The Prime Video membership doesn’t include the free shipping, but includes all of Prime’s video content.

For Amazon, monthly rates are a big change.

These monthly plans are, however, not as big a change for Amazon as Wired thinks they are.

The pricing makes it clear that those plans are at the moment just for promoting the yearly Amazon Prime membership by eliminating the biggest hurdle for those Amazon customers who are still hesitating to join Prime: The upfront yearly fee.

Lets look at the pricing for Amazon Prime in the US:

  • Traditional $99/year for free Prime shipping, video, etc. -> $8.25 per month
  • New monthly Prime -> $10.99 per month
  • New monthly Prime Video only -> $8.99 per month

One can clearly see here that even the monthly video stand alone service is, on a monthly basis, more costly than the whole Prime bundle, if payed by year.

One can be sure that Amazon is going to point out this price difference on a very regular basis to its customers who will have chosen the monthly video plan. Video will help drive the Prime adoption this way even further:

Compared to Netflix’ ‘standard’ plan, its most popular offering with $9.99 per month, Prime Video’s $8.99 per month compares very favorably. Customers interested only in video streaming can now make the argument to add those $8.99 per month far easier than for, say, paying $99 upfront for a year of Amazon Prime just for the video content. But once they pay monthly, Amazon will eagerly tell them that they can get that much more for even less of a monthly price if they are willing to pay the yearly Prime fee.

Step by step those households become Amazon Prime households.

Surprisingly, it needs to be noted that Prime has always been cheaper on a monthly basis than Netflix’ most popular plan. Most reporters seem to not be able to comprehend this. Amazon always undercut Netflix, as I have noted before. With its new monthly plans it is now just a little bit more obvious for customers. (One the other hand Netflix has still a far better content selection, which is to be expected from a dedicated service by the market leader.)

One interesting detail from the Wall Street Journal:

An Amazon spokeswoman said the new monthly option could be turned off or on as customers wished, a possible benefit for shoppers during the busy holiday season.

Holiday seasons have been traditionally strong periods for people to “try out” Amazon Prime temporarily. This is making it official and feasable for more customers. It will be interesting to see how far this will push Amazon Prime at this year’s holiday season.

As the adoption of Amazon Prime is rather mature in the U.S., I suspect the monthly plan additions will launch very fast in other Prime markets because they may significantly drive the eventual adoption of the yearly Amazon Prime memberships.

As Amazon’s TV ambitions grow, a more flexibly priced TV streaming service makes more sense as well. So, in the future we may see more streaming options from Amazon, which recently also launched its first ad-supported original streaming TV show and Style Code Live, a live fashion show.

Also, an unbundled Prime Video can more easily be rolled out internationally. (Far faster than the whole Prime bundle can.) Given the cost structure of high fixed production and licensing costs and very low variable costs of actually streaming the content to customers, a faster international rollout of Prime Video is something we will probably see over the course of this year.

But today it is all about helping people to ease into Amazon Prime.

More on this topic:

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