Amazon Prime Video Could Join the Ad-Supported Revolution

Dan Meier 08 June, 2023 

Amazon Prime Video looks set to become the latest SVOD service to introduce an ad-supported tier, as the Jeff Bezos-owned company looks to shore up its entertainment revenues. Reports emerged this morning that discussions have taken place over the last few weeks, including mention of short ad breaks on the streaming service, though no plans have been confirmed.

Amazon already runs ads on its free streaming service Freevee, but advertisers are reportedly seeking more premium inventory that generates wider buzz. Amazon infamously spent $715 million on Lord of the Rings: The Rings of Power, as well as $1.3 billion (per year) on NFL rights.

But Freevee could still play an interesting role, with Amazon planning to migrate some of its Prime titles to the Freevee service. “The aim here is to use Freevee to introduce these shows to a new audience in the hope that the audience will then step up to Prime Video to watch the new season when launched,” comments Matthew Evenson, Research Analyst for TV and Online Video at Omdia. “An ad-supported tier at its lower price point would be a good way to make that step-up more appealing.”

Eyes on the price

Reports suggest the ad-supported tier would remain a similar price to the current Prime Video subscription ($8.99 per month in the US), with the option to pay more for the ad-free plan. “Amazon could also use this opportunity to transit more consumers into the complete Amazon Prime ecosystem, which is known to have a high retention rate,” observes Orina Zhao, Senior Analyst at Ampere Analysis.

According to Ampere, 47 percent of Prime Video members in the US subscribe to the service because its price is reasonable. Increasing the price for the premium tier “might cause a backlash”, remarks Zhao, potentially leading to subscriber churn. Last week, UK measurement body Barb revealed that Prime Video lost approximately 220,000 subscribers between Q4 2022 and Q1 2023.

The 1.7 drop can partly be attributed to the inclusion of the SVOD service in Amazon Prime memberships; consumers are likely to sign up over the Christmas period but cancel their subscriptions in the new year. This makes Amazon unique in the streaming sector because the company is not dependent on streaming revenues, given the size of its retail and advertising business. In the US the company has the third largest ad revenues after Google and Meta, totalling $9.5 billion in Q1.

Prime time

Still the firm faces the same challenges sweeping the tech industry, and has cut tens of thousands of jobs in recent months, including in its advertising business. Macroeconomic pressures and saturated SVOD markets are pivoting streaming strategies towards boosting profitability, prompting Netflix and Disney+ to introduce ad tiers, with similar plans recently announced at AMC+.

“While Prime Video is somewhat insulated from these pressures because of Amazon’s broader business focus, it is not totally immune to them,” says Omdia’s Evenson. “Amazon has been spending heavily on streaming films and series, in addition to the likely significant sum spent on acquiring rights for Thursday Night Football in the US. An ad-supported tier has the potential to bring in new revenue to help balance the streaming books going forward.”

And consumers are reportedly embracing ad tiers, particularly in the US where 58 percent of streaming subscribers now pay for at least one AVOD service, according to research firm Antenna. The reports additionally note that Amazon is exploring the option of adding other streaming services’ AVOD tiers to Prime Video Channels, enabling users to subscribe to the ad-supported versions of Max and Paramount+ through the app.

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