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Bloomberg has “three people familiar with the matter” reporting that Amazon has fewer than half as many Amazon Prime subscribers as analysts thought.

Prime is a $79-per-year program that offers two-day shipping on all orders, as well as streaming digital video. Analysts thought it had 10 million or more subscribers, but Bloomberg’s sources say it’s more like 3 to 5 million.

That’s a bummer for Amazon analysts and investors, who were already let down by its quarterly earnings miss last month. But Amazon Prime is right in the midst of changing drastically as a product, so it’s too early to cast judgment.

What started as a convenient plan for shipping physical products has just in the past week become a competitive digital TV offering. Don’t count out Amazon Prime yet. It’s too important.

Digital & Analog Convenience

Amazon is all about convenience. It makes buying things so convenient that we do it more often. It’s certainly more convenient than getting off our lazy butts and going all the way to a store. That was the first appeal of Amazon Prime; for $79 a year, you could add instant gratification to the convenience of shipping your purchases straight to your home.

But packing and shipping things is still expensive. It’s dragging on Amazon’s operating costs. Even though Amazon’s fulfillment and distribution of its brown boxes are amazingly efficient, it’s still working to shake up the way it ships physical products, including the possibility of opening its own stores.

Prime makes shipping more expensive for Amazon. But Amazon is building new digital businesses – with insignificant operating costs – and it’s adding those benefits to Prime membership to make it more enticing.

Kindle As A Service

Kindle devices are Amazon’s portable digital content stores. In addition to being a place to watch, read, listen and play, the Kindle Fire is a store where Amazon users can buy books, magazines, games, movies and TV shows (and anything else from Amazon.com, for that matter).

Prime membership has huge benefits for Kindle Fire owners, because they can stream its digital media straight to their devices. Last week, Amazon announced a deal with Viacom, adding 10,000 new videos to Amazon Prime from MTV, Comedy Central, VH1, BET, Nickelodeon and more. Amazon needs enticing content offerings to sell more Fires, and Fire owners buy more digital content (with no shipping costs). The Fire’s Silk browser will load Amazon.com’s whole store at blazing speeds, too, so Fire users can buy physical stuff from their couches as well.

That’s why it makes sense for Amazon to add digital benefits to Prime membership. If it works out, as more Kindle Fires are sold, more Prime memberships will be sold, too.

Amazon’s Poker Face

How many Kindle Fires have been sold? Amazon doesn’t say. We know it ordered 5 million Fires from manufacturers, but it won’t say how many of those have left the warehouse and arrived in the living room.

The annoying thing for us spectators is that Amazon is notoriously cagey about giving away real numbers. Bloomberg says its sources are anonymous because the numbers about Amazon Prime are private. No kidding. Amazon doesn’t even admit how many Kindles it sells, even for the quarter that introduced the Kindle Fire and a whole new line of Kindle e-readers.

Instead, it gives us growth percentages. Kindle sales were up 177% over… well, whatever they were last year… over the 2011 holiday season. But Amazon is just getting busy disrupting the way products are bought and sold. As long as it’s growing, no one should write it off.

Do you have a Kindle device? Which one(s)?

Amazon’s on-demand streaming video offering just got a whole lot more attractive. The company announced today that they signed a deal with Viacom, allowing them to offer thousands of new videos from sources like MTV, Comedy Central, VH1, BET and Nickelodeon, among others.

In total, Amazon Prime will have over 15,000 videos available for streaming, including some very popular television shows. Amazon launched its video streaming service about a year ago with 5,000 videos. With today’s announcement, that number is now tripled.

The move comes just as Netflix struggles to rebound from a rough 2011. One of the ways it’s hoping to do so is by launching original, Web-only TV content like the new series “Lilyhammer.” That strategy is only in its infancy so it remains to be seen how it will play out. In the meantime, Amazon Prime is slowly emerging as a serious potential competitor to Netflix.

Wired’s Tim Carmody argued recently that Amazon is particularly well-positioned to emerge as a such a competitor, not only to Netflix but to cable television as well.

Amazon Prime still has some growing to do, and for now the service is tied to Amazon’s free shipping service of the same name. GigaOm’s Ryan Lawler argues that unbundling the two and launching a stand-alone streaming service could make the service an even stronger contender for Netflix’s throne as king of this space.

It’s worth keeping in mind that Amazon Prime Instant Video only launched in February of last year. Netflix has been around since 1997 and launched its Watch Instantly streaming feature in 2007. Amazon is rising fast, and its clear that digital content is a growing priority for the company, especially now that its also sells its own media tablet.

Amazon’s on-demand streaming video offering just got a whole lot more attractive. The company announced today that they signed a deal with Viacom, allowing them to offer thousands of new videos from sources like MTV, Comedy Central, VH1, BET and Nickelodeon, among others.

In total, Amazon Prime will have over 15,000 videos available for streaming, including some very popular television shows. Amazon launched its video streaming service about a year ago with 5,000 videos. With today’s announcement, that number is now tripled.

The move comes just as Netflix struggles to rebound from a rough 2011. One of the ways it’s hoping to do so is by launching original, Web-only TV content like the new series “Lilyhammer.” That strategy is only in its infancy so it remains to be seen how it will play out. In the meantime, Amazon Prime is slowly emerging as a serious potential competitor to Netflix.

Wired’s Tim Carmody argued recently that Amazon is particularly well-positioned to emerge as a such a competitor, not only to Netflix but to cable television as well.

Amazon Prime still has some growing to do, and for now the service is tied to Amazon’s free shipping service of the same name. GigaOm’s Ryan Lawler argues that unbundling the two and launching a stand-alone streaming service could make the service an even stronger contender for Netflix’s throne as king of this space.

It’s worth keeping in mind that Amazon Prime Instant Video only launched in February of last year. Netflix has been around since 1997 and launched its Watch Instantly streaming feature in 2007. Amazon is rising fast, and its clear that digital content is a growing priority for the company, especially now that its also sells its own media tablet.