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Reuters, Published March 13 2014

Amazon raises Prime membership fee

Amazon.com Inc said it is hiking the annual fee for its popular Prime service by $20 to $99 starting next week to offset rising costs, but the move could spark a customer revolt that undermines a feature that has helped boost its business.

Amazon, which warned of an increase of as much as $40 in January, considers Prime instrumental in driving purchases of both goods and digital media. Prime offers free unlimited two-day shipping and streaming of movies and television shows as well as book downloads, which have helped expand its presence on mobile devices.

The internet retailer said on Thursday the move was driven largely by rising costs for fuel and transport. It has kept Prime's annual fee the same since it began the service in 2005.

"Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years," the company told customers in an email. The new fee was also advertised on its website.

Amazon has come under increasing pressure to show sustained bottom-line growth, following years of rapid revenue expansion at the cost of profits. Analysts estimated the increase could add about a half billion dollars to annual operating income, assuming all of the more than 20 million Prime users in the United States remain on board.

Amazon shares climbed 1.1 percent to $374.71 at midday.

Some analysts said consumers tended to strongly resist online fee hikes, such as when Netflix Inc tried in 2011 to raise its annual subscription fee by what it called "the price of a latte." It backtracked after a customer revolt.

Some Amazon Prime customers responded quickly.

"I'm going to cancel: My thought is that the price should be going down. Prime customers order more from Amazon because of their membership," Caryn Brooks wrote on a Facebook Inc discussion moderated by Reuters.

"By having Prime members they have more guaranteed sales ... they should nurture those folks, not repel them."

One analyst said the hike was expected and consumers would get accustomed to paying more.

"We expect minimal churn. Based on our surveys of consumers, key reasons to shop on Amazon (and online more generally) include convenience, selection, and price comparisons," wrote R.W. Baird analyst Colin Sebastian.

"Prime helps to amplify the first two drivers."