Amazon raising Prime membership to $99 per year

By Jason Abbruzzese, Mashable

Updated: 03/14/2014 03:39:08 PM EDT

Discount will raise the price of its Prime membership to $99 in a bid to boost the company's income through its flagship product.

In an email to Prime members, Amazon identified rising fuel and transportation costs along with a growing stable of products eligible for the program's unlimited two-day shipping as factors in the price increase. Amazon Prime currently costs $79 per year.

See also:10 Things You Didn't Know Amazon Prime Could Do

New Prime members will begin paying the higher price on March 20, while existing members will begin renewing at $99 on April 17. The student price for Prime will rise $10 to $49 per year. It is the first price hike in Prime's nine-year history.

Investors welcomed the news, as Amazon shares rose 2.9 percent to $381.44 in morning trading. But the stock remains down more than 4 percent in 2014 after reporting fourth-quarter earnings that missed revenue expectations.

Prime is a logical place for Amazon to look for an increase in cash flow, particularly as its primary sales of various consumer products relies on thin margins amid fierce competition. Amazon claims to have around 20 million Prime members.

RBC analyst Mark Mahaney said they project between $300 million to $400 million generated by the price increase with minimal loss of existing customers.

"We acknowledge that not all Prime users will adopt an increased membership fee - however, based on our recent conversations with Costco, we don't believe that [Amazon] will see a material increase in Prime sub churn as a result of the increased membership fee," he wrote in an analyst note.

A price increase was first floated by the company during the most recent investor call following the company's fourth-quarter earnings report. The $20 price increase is on the lower end of what Amazon CFO Tom Szkutak discussed.

Amazon noted that its growing media library, much of it included in Prime, now counted 40,000 movies and TV episodes as well as 500,000 e-books available for lending. It has also been reported that Amazon has been in talks to add streaming music to its media offerings.

"We are working to expand selection even further, as we develop additional fulfillment and transportation capacity to make the Prime program even more valuable to our members," an Amazon spokesperson wrote in an email to Mashable.

While Prime's original selling point was its two-day shipping, the media offerings from Amazon have slowly begun to rival other streaming outlets like Netflix.

Amazon's shipping is already fast - standard shipping arrives in an average of 3 days, 10 hours, according to consumer service analytics firm StellaService. Depending on how much a person orders from Amazon, having a package arrive 36 hours earlier may not be worth $99 per year.

But Prime is no longer just a shipping product. Amazon has begun to morph it into the company's primary consumer-facing product with a variety of features.

"Netflix is one set of things and Amazon Prime is a lot more than that," said
David Smith, an analyst with Gartner. "I think it comes down to people being comfortable with the company, with the value they have already received."

The price increase brings Prime closer in price to other competitors. At $99 per year, the service costs $8.25 per month, making it slightly higher than the $7.99-per-month of Netflix and Hulu.

Prime content may not be of the caliber of Netflix or HBO Go, but Amazon is working on that, with original series and content licensing deals with CBS. Extant, a thriller produced by Steven Spielberg's Amblin Television and starring Halle Berry, will be available on Prime just four days after airing on TV.

Have something to add to this story? Share it in the comments.

And with Amazon prepping the launch of its entry into the streaming set-top box market, Prime will conceivably be put front and center of the company's first foray into living rooms across the country.

This article originally appeared on Mashable .