Amid Amazon's (AMZN) first quarter results last night, was the subtle message that Amazon Prime, Amazon's two-day shipping and content service, is more powerful than most think. And it may only be getting stronger.
On the earnings call, Amazon said it was encouraged by what it has seen so far with Amazon Prime, despite the price increase. In March, Amazon raised the price of Prime to $99 from $79, a price it had been since Amazon introduced the service in 2005.
Though it's unknown exactly how many members of Amazon Prime there are, it's thought there are about 20 million members around the world. Amazon is continuing to innovate in this area, as it becomes all things to all people, consumers and enterprises included.
Assuming 20 million members and a $20 price hike, Amazon should be able to generate at least $200 million in added annual revenue from this, taking into account student Prime accounts (which do not pay the full price) and free trials. That's a pretty impressive bump to revenue, without having to do anything.
Aside from the free two-day shipping service, which is great if you order a lot of stuff from Amazon, the big kicker is the content Amazon is providing. Amazon has over 40,000 TV shows and movies via Prime, and it costs nothing extra. Amazon has been working on investing heavily in original content as well as licensed content. Alpha House, an Amazon original starring John Goodman, was recently re-upped for another season, and the company is working on several other projects.
However, the recent HBO deal, where Amazon is licensing older HBO content, is a potential game changer. The deal runs for three years, and is a direct shot at Netflix and its streaming service, as Amazon CEO Jeff Bezos is trying to capture seemingly every market, and every industry. With the deal, Amazon now has TV shows such as The Sopranos, The Wire, Deadwood, certain seasons of Boardwalk Empire, and a host of others that were never available outside of HBO before.
Wedbush Securities analyst Michael Pachter, who rates Amazon underperform with a $330 price target, notes this is an enormous deal for Amazon, and changes Amazon Prime Instant Video from being an after-thought into a real Netflix competitor.
"In our view, the first wave of HBO content on Prime Instant Video is unparalleled for a subscription-only online streaming service from a quality perspective," Pachter wrote in a note to clients. "According to Brad Beale, Director of Content Acquisition for Amazon, the shows ... have over 115 Emmys combined. We believe the HBO deal positions Prime Instant Video as a viable competitor and potentially more appealing alternative to Netflix. Through the HBO deal, in addition to its own original content, Amazon has the potential to offer close to seventy different series that we believe HBO owns outright, with multiple seasons available for the more successful shows."
Those reasons, coupled with the recent announcement of Prime Pantry, Amazon's grocery service for essentials (Amazon charges $5.99 for every 45 lb. box), and Amazon is strengthening Prime to not only be the killer service for the company, but an industry (warehouses, streaming video) disruptor as well.