'Amazon Prime' Price Hike

Online retailer raises price of premium membership to $99 a year.
3:00 | 03/12/14

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Transcript for 'Amazon Prime' Price Hike
I'm -- company are with the story that helping now shocking news for Amazon -- -- prime membership. It's about get more expensive the online retailer hiking its premium price for the first time in nine years. In fact starting march 20 you'll be paying 99 bucks a year. Up from 75. So for more on that corner bringing ABC news chief business -- economics correspondent Rebecca Jarvis also host of the hit digital show real -- Rebecca thanks for joining us. Thanks have been having can't listen Amazon hasn't raised its prices in nine years why now. -- they hinted at this back in January the company said are shipping costs have gone up 19%. They're spending over a billion dollars. To send out all of those things that we customers are ordering Britain two free days of free shipping so. Ultimately what's going on here is they're trying to cover those costs they also back and by the way said that the cost could go up as much as forty bucks. So if you look at it like that the customers are actually going to be -- a little bit less than as much as they said they could be. OK I guess if that is. Hit their business silver lining to the announcement of pain my guess that would be it what are the pros than to this kind of -- We'll certainly for Amazon there are some -- the fact of the matter is they're paying more for shipping and ultimately they want to cover those costs. And they want their customers to cover them for them -- -- there's a lot of people out there who are Amazon prime subscribers by the way they say they're somewhere analysts say there somewhere between 20000000 and 25 million Amazon prime subscribers. We don't get an exact count from Amazon they don't release that kind of information but. For most of those people or at least for many of them. This is something like -- checking account in that they don't want to go around and change they don't want to find a new debate tomorrow just because. The cost has gone up and ultimately Amazon is banking on the fact. That most people are lazy they're gonna stick around -- party entered all of their information and they just like having the same service day after day. At the same time -- from 75 tonight at nine dollars it's not exactly a small incremental -- on there. What's the fear that was the thinking behind Amazon of the concern then that those customers even though they may say that they may be. Comfortable as you might be with the checking account or savings account or whatever banking institution -- working with. That they may actually lose some. Sure there's definitely going to be some price sensitivity in fact I've been on social media today. And getting questions from a lot of people who follow me on FaceBook and Twitter and some of them have said. They're dropping Amazon now there's a lot of them who have also said they're sticking with -- And this is really going to be a question for how much are you actually using Amazon are you using it also for the free unlimited streaming prime videos that they offer -- using it for the books there's also talk now that they're going to be coming out with music at some point in time. Really when people take a step back it's a matter of how much free shipping are you actually using the typical Amazon user. Gets ten shipments a year from Amazon that's the Amazon prime customer. So that wet now from a cost of seven bucks for shipping to a cost now of ten dollars for shipping if you really break it out and think of it and only those terms. How many people are going to look at their finances and say this is actually this doesn't make sense they're certainly probably going to be people who say that there have been some. Unofficial surveys online where 60% of people said that they were price sensitive that they would potentially -- Amazon prime if they raise prices. But then when you also look at other on official -- of people. And you say. What do you value most in your life right now for a lot of people is that efficiency. It's not having to re enter their information in other places it's just being able to do that one click shopping and that is what Amazon has cornered the market on. Jeff pesos the founder and CEO has said all along he's all about building scale he wants to get so many people in Amazon's front door using it on a regular basis that at some point -- so addicted to it -- so reliant on it. That he can actually. Start raising prices even more at that point. That then -- the network effect of being able to show bit of a profit there. -- lot of people have Amazon struck how were investors reacting to this kind of news. So investors initially applauded the news the stock -- come down a little bit now but investors like it because Amazon. Is not exactly a company that makes a lot in terms of its profits they make -- -- sales billions in sales. But in terms of their profitability. What the company actually takes home after it -- something -- it it considering all of the expenses. They don't take home a lot of money where they do you take their money is on Amazon prime. Now but the price is going up that's where they can make some profit. But they had to be able to cover the shipping costs in the first place so the market overall is -- it will obviously be following to see how many customers are price sensitive but most people are anticipating that of those twenty to 25 million subscribers to Amazon prime. That there's going to be a very small impact that the analyst community at least -- thinking they'll be a very small impact there. And that's a move from Amazon but what about other retailers -- -- one of our experts Bryant's oxy said today that there is -- -- Of big box store closings you take that along with mall traffic could possibly be in trouble is that just another reason why investors are possession and position themselves. In Amazon. I think it's bigger than that actually I think this is a sign of the times and they think that. In general retail and we especially have now seen it throughout this last holiday season and we're starting to really see it as we enter the year 2014. And are really there with the first quarter. So many retailers are facing an uphill battle when it comes to keeping their brick and mortar stores open we saw this absolute cold weather well guess what if you weren't a brick and mortar retailer and you didn't have to keep your doors open throughout all of this cold. You probably save a lot of money the brick and mortar companies the staples the radio shacks the JC -- this year's of the world that are talking about store closures. Part of it is that it's really difficult when you're dealing with that double whammy of people not out shopping. And people spending more and more money online so it's a really big topic. Amazon is clearly becoming a winner here because they're gaining a lot. Of the sales but they're not necessarily winning just yet on figuring out how to make their business extremely profitable. And that is still an open ended question on Wall Street's mind. But I think when you're looking at it from a Wall Street's standpoint when you're looking at these brick and mortar retailers are looking at the companies that have storefronts in malls across America. That -- changing landscape it's changing in malls across America. And it means a very different things for the employment picture in this country because every time when these stores closed. That's jobs that get lost it means big things for of the real estate picture in this country because. All of a sudden you have malls that have huge gaping holes in them there's nobody to fill -- -- complicated retail picture -- for -- I try to make it simpler. You do absolutely which is one of the reasons why let chatting with you they as -- that you are able to break it down and understandable terms and it's always appreciated. Rebecca Jarvis ABC news chief business and economics correspondent and host of art digital show real -- Rebecca thank you appreciate Baghdad and of course you can keep up with the story in real time by downloading CNET news out and starring this story for exclusive update on the go. For now. I'm Dan Cutler in New York with this ABC news developing story.

This transcript has been automatically generated and may not be 100% accurate.

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