In Depth

Amazon Prime Tests Monthly Fee, Going Head-to-Head With Netflix -- Monthly Rate Actually Costs More Than Usual Annual Fee

By Jeanine Poggi
Advertising Age

Amazon's video streaming service is looking a lot more like Netflix and Hulu.

The internet giant is testing a $7.99 subscription plan for its Prime membership, which gives members two-day shipping, free streaming of TV shows and movies and access to one free e-book to borrow per month from Kindle's Lending Library.

Amazon Prime is regularly $79 a year, but the website has now been updated to say the service is just $7.99 per month. That's actually more expensive on an annual basis, but the monthly approach frames Amazon Prime for the first time as a monthly product that's easily comparable to Netflix's streaming service and Hulu Plus, which are both $7.99 a month.

Amazon has been pegged by analysts as a potential acquirer of Netflix, particularly after billionaire investor Carl Icahn bought a 10% stake in Netflix and said the company should be consolidated.

"We acknowledge that an acquisition of Netflix by Amazon makes economic sense, insofar as Amazon could then realize savings of approximately $1 billion per year by consolidating its content purchases with Netflix," Wedbush Securities analyst Michael Pachter wrote in a note on Nov. 1. "Further, Amazon alone is in a position to exploit Netflix's customer list by cross-selling Amazon retail merchandise and cross-selling Prime memberships to Netflix customers."

On Monday, however, Netflix adopted a poison pill to make a hostile takeover more difficult. The provision allows Netflix to flood the market with new shares if any one person or group acquires 10% or more of the company.

Amazon's decision to test the $7.99 subscription further suggests a deal to buy Netflix is now unlikely, Mr. Pachter said. "Quite the opposite," he said via email. "They are trying to make it look more competitive with Netflix in order to win over new customers from Netflix."