Amazon's new video streaming service targets poor people, even though it's pricier than Prime, says analyst

Jeff BezosMichael Seto/Business InsiderAmazon CEO Jeff Bezos

Amazon Prime Video’s new monthly pricing tier is aimed at attracting lower-income customers,
according to Macquarie Research’s Ben Schachter, even though it’s more expensive than the annual Prime plan.

In a note published Monday, Schachter wrote the majority of Prime users so far have come from the upper-income US household market ($55,000 or more), who were willing to pay the $99 upfront annual fee for access to free two-day delivery and a bunch of video and music content.

But the new $10.99 a month plan, which would cost $131.88 for the whole year, gives the freedom to commit to the service on a month-to-month basis, potentially making it a more attractive option to people who found the $99 upfront annual fee too costly.

“We view the full launch of a monthly option as Amazon pushing to attract new lower-income Prime members,” Schachter wrote. “It could prove more attractive for those who cannot afford (or want) a $99 up-front membership or don’t want to commit for a full year.”

Schachter added that Amazon will continue to experiment with new initiatives to pursue lower-income households. For example, it recently offered a 20% discount on new video games to all Prime users. These are all part of Amazon’s plan to get Prime to 50% of US households by 2020, he said.

“Given that we think Amazon Prime is likely somewhat saturated for above-average-income households in the U.S., we think that Amazon will continue to experiment with ways to attract more lower-than-average-income households over the next few years,” he wrote.

Amazon’s concentration on the higher income market for Prime has often been pointed out by other analysts as well. In a note published last week, Piper Jaffray noted that Prime’s penetration is highest and growing fastest among upper-income households, with more than $112,000 a year in annual income. They drove 40% of the Prime’s growth over the past three years, and now more than 70% of households in that demographic have a Prime subscription.

Amazon doesn’t disclose the exact number of its Prime membership users. But it did say it grew 51% last year, and has “tens of millions” of users.

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.

NOW WATCH: Tony Robbins reviews DJ Khaled’s keys to success

NOW WATCH: Tech Insider videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.