Amazon is set to introduce advertising on its Prime Video service in key markets as a means to offset increasing costs and bolster its advertising business. The move comes in response to a trend followed by other streaming platforms such as Netflix and Disney, who have also incorporated ads into their services.
Starting early next year, Prime Video will default to an ad-supported streaming model in the US, UK, Germany, and Canada. While users will still have the option to pay the annual subscription fee of $139 in the US, they can also choose to pay an additional $2.99 per month to avoid ads. Pricing details for other countries will be announced at a later date.
Ads on streaming services have the potential to turn off viewers, but platforms like Amazon see them as a means to counter rising production costs amidst fierce competition. Amazon has stated that it aims to have fewer ads than traditional linear television and other streaming providers to enhance user experience.
Amazon's CEO, Andy Jassy, has been closely examining the company's expenses on original TV programming. In 2022, Amazon spent $7 billion on original shows, licensed programs, and sports content, an increase from the previous year. While Amazon continues to invest heavily in original content, it remains the only major streaming platform, apart from Apple TV+, to not feature ads.
Despite cost-cutting measures implemented by Jassy, Amazon's earnings report has impressed Wall Street, showing strong growth. The company's revenue from services and advertising to independent merchants has been increasingly lucrative. Advertising sales increased by 22% to $10.7 billion in the second quarter, and the inclusion of Prime Video ads will grant brands another avenue to reach customers.
While Amazon is striving to control costs, it remains committed to its original content strategy, which it believes enhances the value of its Prime subscription service and fosters customer loyalty. The acquisition of MGM for $8.5 billion and the significant investment in the Lord of the Rings: The Rings of Power series demonstrate Amazon's commitment to creating content.
Additionally, Amazon's deal to stream Thursday night NFL games for $13 billion over 11 years has bolstered its live sports portfolio but has also added significant costs. Regardless of whether users have opted for the ad-free option on Prime Video, ads will continue to be present during sports and live event content.
The introduction of Prime Video ads will expand to other markets, including France, Italy, Spain, Mexico, and Australia, later this year. This move will provide additional opportunities for brands to connect with customers through Prime Video's growing viewership.