What's Behind Amazon's $7.99/Month Prime Streaming Trial?

Amazon’s shipping-plan related Internet video streaming service, Amazon Prime, is test driving a $7.99 monthly subscription service—a move that would put it in on par with Netflix Watch Instantly and Hulu (News - Alert) Plus. The move could signal a new strategy for Amazon in the streaming business, and may help rule out any takeover of struggling Netflix by the e-tailer.

"We are always looking at ways to improve the shopping experience for our customers,” it told TechCrunch. “We are testing a monthly Prime subscription. Beyond that, we don't have anything further to offer."

Of course, Amazon Prime is more than an online rental service. It also offers one free e-book per month from the Kindle Owners' Lending Library, along with free two-day shipping on any purchases. Amazon typically offers it for $79, and the emphasis is really is on the shipping perk as an excuse for the price tag (News - Alert) – it’s easy to make the ROI case if one shops often at Amazon.

In contrast, the $7.99 per month will of course end up being about $17 more per year for the flexibility of no large upfront payment, but the move does something else – it positions Amazon’s Prime service as a contender in the low-cost streaming game. The Prime streaming library is a stripped-down version of a full Amazon Instant video subscription, and doesn’t offer the breadth and range of the big instant enchilada (and neither does Netflix, incidentally). Regardless, it still gives unlimited access to thousands of titles and, at a lower cost point, moves the service out of the shadow of free shipping and into the ring with competitors that are looking increasingly weak.

Netflix, struggling mightily with margin concerns and a volatile stock price (and a new investor in the form of Carl Icahn), is dealing with whispers of a hostile takeover or the specter of simply being forced to sell itself. Additionally, Hulu Plus simply isn’t making enough money to be that attractive as a standalone business.

Amazon, on the other hand, has an opportunity here. Amazon has a much larger business in physical goods and services plus data center hosting and cloud computing that it can use to shore up a digital strategy, unlike Netflix and Hulu. They could grow that business acquisition (say, of Netflix), but researchers think that it’s unlikely to happen when the e-tailer could simply expand Prime.

“We believe they are wedded to video within Prime and are simply against the idea of separating out a streaming video service,” said researchers at BTIG. “Amazon wants to drive Prime, utilizing video streaming as yet another ‘sweetener’ to induce subscriptions. Amazon appears to be taking a methodical approach to dialing up its investment in Prime streaming video, with each content investment measured against the growth in Prime subs, churn and lifetime value of a sub.”

While buying Netflix would give Amazon a dramatic boost in streaming video subscribers, utilization (hours streamed/sub/month) and the ability to market Prime to Netflix’s 25+ million subscribers, “it appears too large a step function in terms of content spending for Prime, unless Amazon is willing to create a standalone streaming business,” they continued.

Instead, expanding the subscriber base for Prime organically via a low monthly price tag, integrated with the rest of its business, would allow it to continue its slow and steady expansion into digital content distribution while hedging risk.