Amazon Gambles with Ads on Prime Video: A Smart Move for Revenue Or Risk to Subscriber Loyalty?

Amazon.Com Inc AMZN charging Prime members for ad-free streaming has led to dissatisfaction among some customers, who canceled their Prime subscription after learning Prime Video would include commercials. 

Despite this, Amazon expects the number of Prime members to continue growing, with high renewal rates, the Wall Street Journal reports. 

Analysts noted $6.6 billion – $8.0 billion of incremental revenue on the worldwide launch of the plan. 

In the third quarter, Amazon’s $12 billion ad revenue marked a 26% jump from the previous year. 

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The introduction of ads into Prime Video, which officially begins in the U.S., is part of Amazon’s strategy to invest in more compelling content. Amazon’s position is unique as streaming constitutes a minor part of its business, with Prime Video often seen as an additional benefit.

The company anticipates that this approach will significantly increase its advertising revenue and additional subscription revenue from those opting for the ad-free version. 

This model contrasts with other platforms like Netflix Inc NFLX and Walt Disney Co DIS Disney+, which offer ad-free versions at different pricing structures.

Last year, changes to its Amazon Music service aimed at encouraging users to upgrade to a premium tier also faced backlash. 

The bundling model of Amazon Prime, combining multiple services, reduces the likelihood of cancellations. 

However, the shift towards ads in Prime Video tests this model prompted some consumers to look for alternatives to Amazon for their shopping needs.

Bank of America analyst Justin Post anticipates Amazon will significantly benefit from this change, potentially generating billions in additional advertising and subscription revenue. 

Price Action: AMZN shares are down 1.40% at $159.01 on the last check Tuesday.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.