1 In 5 Amazon Prime Customers Isn't Using A Key Part Of The Service

Feb 03, 2014 | Updated Feb 04, 2014

Amazon Prime fans love the service for the bargain it delivers. For a $79 annual fee, they get free two-day shipping on nearly 20 million items and one free ebook each month from the company's Kindle library. Yet nearly one-fifth of Prime customers don't use one of the service's best features: streaming video.

A recent report from Consumer Intelligence Research Partners, a Chicago-based research firm, found that 19 percent of Prime members never use Amazon Prime Instant Video, the company's Netflix-like streaming service. Forty-seven percent of Prime members, CIRP found, use it at least once a week.

To be sure, Amazon hasn't been marketing Prime's video feature very aggressively, and analysts have pointed to Prime Instant Video as a service thrown in just to make Prime more attractive and get more people to sign up. After all, Prime members tend to shop more frequently, spend significantly more and buy more expensive items, so enticing people to join with perks makes sense.

Amazon did not immediately return a request for comment about the share of Prime members who stream free video. But the company has been spending a lot of money to secure exclusive rights to TV shows and movies, and, like Netflix, is starting to develop its own series. "Alpha House," a political comedy starring John Goodman, and "Betas," a comedy that centers on a group of developers at a Silicon Valley startup, premiered last fall, and there are at least three children's shows in the works.

Amazon recently released an ad for Prime that Rich Greenfield, a prominent media analyst at BTIG, called an "attack ad targeted at Netflix." The two-minute spot featured a testimonial from a Prime customer: "Who needs to subscribe to another video service -- you get video, great movies right there on demand as part of Prime."

Prime Instant Video, Greenfield wrote at the time, has so far "had little-to-no impact on Netflix," but the new ad, coupled with the company's increased spending on content, led Greenfield to question whether Amazon may actually begin to pose a threat to Netflix this year.

The new CIRP figures come at a time when Amazon is mulling raising the price of Prime by as much as 50 percent, the first price hike for the service in nearly a decade. One analyst even asked on the company's earnings call last week if Amazon would consider spinning off Prime Instant Video as its own service. (In typical Amazon fashion, the CFO wouldn't answer.)

Still, it may not be a big deal to Amazon that some Prime members don't use the free add-on video streaming service, simply because it isn't the company's only streaming video option. There's also, somewhat confusingly, Amazon Instant Video, a service that, like iTunes, sells and rents movies and TV shows on a per-stream basis. Amazon Instant Video offers more -- and newer -- content than Prime Instant Video, meaning there are plenty of movies and TV shows members don't get free access to; they have to pay per stream just like everyone else.

And in its research, CIRP found that Prime members who do use Prime Instant Video are much more likely to buy streaming video from Amazon than their non-Prime counterparts. The free video creates "video junkies" who are then more likely to pay for content not available through the Prime service, said Michael Levin, a partner and co-founder of CIRP.

"It's brilliant," Levin said. "It's sort of like how a drug dealer works. They give you a little bit of free crack and then you've got to buy from them."