Earlier in December, Amazon ( AMZN ) announced that its Prime Members can add SHOWTIME, STARZ and several other video subscriptions to their Prime membership. Market Realist estimates that Amazon has nearly 50 million Prime members in the U.S. and around 60-80 million globally. The company is offering a special Prime pricing of $8.99 per month for subscriptions of SHOWTIME and STARZ, lower than the $11 rate charged by SHOWTIME to customers for its unbundled, online streaming. Amazon believes that the over the top streaming experience will increase consumer convenience and make it simpler for the user to select viewing content through a single account. We believe offering these services as a discount might attract more Prime members which is a key driver for Amazon's growth.
Tapping into the "Cord Cutters" Market
Consumers in the U.S. are increasing seek flexibility and convenience in how they watch videos and this is attracting them to alternate streaming media. A report by PWC states that 79% of the respondents said they would subscribe to pay TV over the next year, compared to 91% last year, indicating a shift towards streaming services. Streaming video and audio accounts for nearly 70% of internet usage in North America during the peak evening period, indicating the significant rise in streaming entertainment. While Netflix is definitely the leader in this market, with more than 50% households in the U.S. having a Netflix subscription, Amazon's move aims to both increase the incentives offered by the Prime membership program and target the increasingly popular market of online streaming.
Prime Memberships Key Revenue Driver For Amazon
According to website traffic management firm Millward Brown Digital, the conversion rate among Amazon's Prime members is 74% compared to 13% for non-prime members.. The report also suggests that once a consumer becomes a Prime Member, he is less likely to purchase from any other e-retailer, indicating the strong loyalty of Amazon's Prime Members. The company's growth in its most significant general merchandise segment in the U.S. will be driven by increase in Prime memberships.
Given the loyalty and importance of Prime members in driving the company's revenues, Amazon is taking several initiatives to grow and retain their numbers. Offering a wide choice of streaming entertainment at discounted rates appears to be another step in this direction, as an increasing number of users move away from pay-TV. We believe that, while this initiative may not make Amazon a strong contender in the streaming services market, it should drive Prime memberships and consequently Amazon's revenues in future.
View Interactive Institutional Research (Powered by Trefis):
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.