Bad news for Amazon Prime members as the e-retailer is looking to hike the membership fee.
Amazon is considering increasing the fee for its Prime free two-day shipping service by $20 to $40 per year as revealed by its CFO Thomas Szkutak at the company's fourth quarter earnings call.
The online retail giant, however, did not reveal the exact date when the fee would become applicable. Currently, it charges $79 for the service per annum. Prime members not only benefit from two-day free shipping on eligible items, they also get free streaming of 150,000-plus movies and TV episodes, as well as free e-book borrowing.
"We have added massive selection and digital content to the service-Kindle owners lending library, Prime instant video," said Szkutak during the call. "It's great value for customers. We see customers love it and we will continue to make that better over time."
So what's the reason behind Amazon's decision to hike the Prime membership fee?
"Customers certainly love Prime," Szkutak said. But "shipping costs have gone up a lot. Fuel costs have gone up a lot."
Thus, with the increase, Amazon will look to offset increasing shipping costs. This is the first time in nine years of Prime's existence that Amazon will increase the annual membership fee. However, it will be interesting to see how customers respond to this move. Those who are not regular Amazon shoppers may be put off by the $120 annual fee for Prime.
A possibility exists that Amazon could begin charging monthly or quarterly instead of annually to retain more Prime members. The service is quite popular and has seen a massive growth in the last few years. Earlier in December 2013, Amazon revealed that it had more than 20 million subscribers.
According to Colin Sebastian, an analyst with Robert W. Baird & Co., Amazon's move can be attributed to "pricing power." He is of the opinion that Prime customers are loyal to the service and the price hike will not affect the service's growth.
Amazon reported a net profit of $239 million, or 51 cents per diluted share in the fourth quarter.
