Amazon Aims at Netflix With Separate Prime, Video Subscriptions

Under CEO Jeff Bezos, Amazon is a $100 billion company with a $7 billion cash war chest and a reputation for spending the time and money necessary to build a profitable business.

Customers can now pay $10.99 a month for Prime or $8.99 a month for just Prime Video.

Amazon is taking on Netflix with a new stand-alone membership for Prime Video.

The e-commerce giant on Sunday night will begin offering two new monthly memberships, the first time it has directly allowed customers to eschew the commitment of an annual Prime subscription in favor of a more flexible monthly option (Sprint began offering monthly Prime memberships as part of a bundle last month). Now, customers can subscribe to Amazon Prime for $10.99 a month or just Prime Video for $8.99 a month.

The monthly Amazon Prime subscription comes with all the perks that annual Prime members also receive, including free shipping, access to music via Prime Music and TV and movies via Prime Video. The Prime Video option, however, offers Amazon's library of original and licensed video without the free shipping or music streaming perks.

Amazon has made its video streaming business a priority in recent years, bulking up on original shows like Transparent and Mozart in the Jungle, paying top dollar for exclusive streaming rights to broadcast and cable TV fare and spending big to distribute films such as Spike Lee's Chi-Raq and Sundance title Manchester by the Sea. But this is the first time that the Jeff Bezos-led company will separate its video offerings from its core Prime shipping offering.

The move puts Amazon in more direct competition with streaming rival Netflix and comes as the subscription video market has heated up over the past year with the introduction of an ad-free Hulu service and YouTube's Red offering.

"Amazon is in this to win this," says Wedbush analyst Michael Pachter. "Before, video was an afterthought to free shipping. Now, it's top of mind. In order for this to succeed, they're going to have to market it and spend a lot of money on new content."

Pachter notes that the new memberships are being released just a few weeks ahead of Netflix's planned price increase, when it will begin charging $9.99 for its standard membership (an increase of $1 for those who subscribed between May 2014 and September 2015 and an increase of $2 for older U.S. subscribers). Hulu, meanwhile, charges $11.99 for its recently introduced ad-free option.

"It was inevitable that Amazon was going to promote that Prime was cheaper, but an annual membership fee versus a monthly membership is not quite a perfect comparison," adds Pachter. "Netflix opened the door with price increases."

Both monthly subscription tiers are more expensive than Amazon's annual subscription. The company raised the price from $79 to $99 in the spring of 2014. The $10.99-a-month Prime membership is equivalent to nearly $132 for the year, while the $8.99 a month Prime Video option is nearly $108 a year. What makes these monthly options attractive, however, is that they can be canceled at any time. So, a customer can sign up for the monthly plan, binge the first two seasons of Transparent and then cancel the plan.

Amazon made efforts to launch a similar monthly option in 2012, but tested it for only two weeks before shutting the program down. The Seattle-based Amazon is set to report first quarter earnings Thursday after a weaker-than-expected holiday sales season. The company had its biggest quarter ever at the end of last year but reported revenue and earnings lower than what Wall Street was expecting.

Amazon did not make executives available for interviews about the new monthly subscription plans, but the move appears designed to address the needs of customers who are hesitant to commit to an annual membership or are subscribing to Prime only for the video streaming. The company has not disclosed the exact size of its Amazon Prime subscriber base, but these new monthly subscriptions could also help to boost its subscriber count. Netflix currently boasts 44.7 million total subscribers in the U.S.

Notes Pachter: "What this says is that they now believe the content is good enough to justify a stand-alone service."