Amazon Prime price increase

“There are two kinds of companies,” Amazon.com (AMZN) Chief Executive Officer Jeff Bezos is fond of saying, in one of his earnest, oft-repeated Jeffisms. “Those that work hard to lower prices, and those that work hard to raise prices.”

Amazon, he has always contended, was firmly in the former camp. So Thursday’s announcement must come as something of a defeat inside the walls of the Seattle-based Internet giant. After forecasting the possibility in its January earnings call, Amazon raised the annual fee for Amazon Prime, its two-day shipping service. The suitably prime rate of $79 a year has now increased by 25 percent, to $99—which, as any sixth grader will drolly inform you, is easily divisible by 3, not to mention 9 and 11 (and so on).

In a letter to Prime members this morning, Amazon cited fuel and transportation costs and noted that the number of items eligible for free Prime two-day shipping has jumped to more than 20 million products. Amazon’s shipping expenses have indeed risen dramatically, from $2.4 billion in 2010 to $3.5 billion in 2013. In all but two years since Prime’s inception, Amazon’s net shipping costs have increased more than 25 percent. At the same time, Amazon has extended Prime eligibility to millions of products sold by third-party merchants that store their stuff in the company’s distribution warehouses, via its popular Fulfillment by Amazon program.

Prime isn’t just a two-day shipping program anymore. It’s become a varied loyalty program that draws customers in and seeks to convert them into Amazon addicts. And that costs more. That said, Amazon Prime’s streaming media service isn’t priced at much of a premium compared with competitors. Prime’s monthly cost is now $8.25, not much more than the $7.99 that Netflix (NFLX) charges for a service that doesn’t also come with digital book rental and free shipping on a vast assortment of merchandise.

The Prime price increase is partly the result of changes in the way Amazon itself has used the service—as its prime weapon (pun intended) in the battle against Google (GOOG) and Apple (AAPL). Bezos believes, even more so than his rivals, that content (books, music, and the like) can be the gateway drug that lures customers into Amazon’s immersive world of devices and digital services. So over the last few years, he has packed digital freebies into Prime membership: 40,000 movies and TV episodes inside Prime Instant Video, plus more than 500,000 e-books that can be borrowed free, one each month, within the Kindle Owners’ Lending Library.

And Bezos is only getting started. Amazon is producing its own television shows and movies in an arms race with Netflix to secure exclusive streaming rights to the most popular TV series. And the company is reportedly working on adding a free music streaming service into Prime. It’s also hiring game developers like crazy up in Seattle, building a game studio from scratch in an effort to replace the selection of mobile applications it loses by not putting Google’s more popular Android app store on its Kindle Fire tablets. In the next few weeks, Amazon will also likely release a set-top box for the living room, and it wouldn’t be surprising to see the device touting extra benefits for Prime members.

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Non-HBO subscribers will soon be able to watch some of the network's old TV shows, like "The Sopranos" and "The Wire," on Amazon Prime's streaming video service.

Amazon (AMZN, Fortune 500) described the deal as a first for HBO, which has a reputation for being tightfisted with its library of hit shows -- even ones that stopped airing years ago.

The assortment of HBO shows will be a significant addition to Amazon Prime as it attempts to sign up more monthly subscribers and challenge Netflix. HBO will continue to provide complete access to all its shows through HBO GO, the streaming service for its existing subscribers.

The Amazon deal draws a bright line between old and new. The seasons of "Girls," "The Newsroom" and "Veep" that are premiering this year won't be available through Amazon Prime for approximately three years. The three-year delay will apply to past seasons as well: for example, the first season of "Girls," which premiered on television in 2012, will become available on Prime in 2015.

What's missing entirely is HBO's current biggest hit, "Game of Thrones." The deal also excludes "True Detective," the new series with Matthew McConaughey and Woody Harrelson that debuted earlier this year to rave reviews and quickly became a pop culture phenomenon. HBO may seek to make money from repeats of those shows some other way.

HBO is owned by Time Warner (TWX, Fortune 500), which is also the parent company of CNNMoney.

Previously, the only ways for people without HBO to watch the network's shows would be by purchasing DVDs, buying individual episodes through Amazon or Apple's (AAPL, Fortune 500) iTunes store, or by watching reruns of certain shows on other cable channels. ("Sex and the City" now runs on the E! channel, and isn't included in the Amazon deal.)

In the television industry, revenue from DVDs and reruns has been declining as viewers gravitate toward on-demand ways to watch. With Amazon, HBO is generating a new way to make money from its reruns. In Hollywood, this is known as a new "window" for programming. (The first "window" remains the hotly-anticipated premieres of episodes on the main HBO television channel.)

Amazon and HBO said the first shows would start to appear on Prime on May 21, just in time for Memorial Day weekend.