Balancing Profitability and Entertainment: Amazon Considers Launching Ad-Supported Prime Video Tier

Amazon.Com, Inc AMZN looks to launch an advertising-supported Prime Video streaming service tier to build its ad business further and generate more entertainment revenue.

Advertising has been an area of continued growth for Amazon, growing by 21% year over year to $9.5 billion in the first quarter, the Wall Street Journal reports.

It is the third-biggest player in terms of digital ad revenue in the U.S. after Alphabet Inc GOOG GOOGL Google and Meta Platforms Inc META, according to Insider Intelligence. 

Advertisers expressed interest in Amazon offering an ad tier for Prime Video service, likely to inspire other streaming platforms, including Netflix, Inc NFLX and Walt Disney Co DIS. Specifically, ad buyers claimed more access to premium movies and programs that have mainly remained ad-free. 

Amazon has been attempting to bring more ad-supported programming to Prime Video.

Separately, Amazon is discussing with Warner Bros. Discovery, Inc WBD and Paramount Global PARA about adding the ad-based tiers of their streaming services through Prime Video Channels. 

Through Prime Video Channels, users can subscribe to streaming services, including the ad-free versions of Max and Paramount+, and view through the app.

Amazon is weighing multiple ways of introducing ads in Prime Video, including bringing more advertising to existing Prime subscribers with an option to pay more for an ad-free alternative and other features. It is planning for shorter ad breaks.

Creating an ad tier would help Amazon cover the costs of producing its shows and movies, considering CEO Andy Jassy's growing focus on profitability.

Internally CEO Andy Jassy had expressed his faith in the value of entertainment, mainly live sports.

Meanwhile, Amazon is discussing bidding for the rights to stream National Basketball Association games and adding that launching a Prime Video ad-supported tier could help pay for those rights.

Price Action: AMZN shares closed lower by 4.25% at $121.23 on Wednesday.