Introducing an ad tier for Prime Video isn’t as simple for Amazon as Disney+ and Netflix. It must protect Prime Video’s three roles; Prime benefit, retail video store, and FreeVee ad driver.
Last week’s news that Amazon is considering adding an ad tier of service to Prime Video is a bit of a head-scratcher. On the face of it, it is simply following in the footsteps of Netflix and Disney+, both of which added ad tiers late last year. However, the move would be much more complicated for Amazon than its SVOD peers.
Prime Video is an essential part of Amazon’s retail strategy
For the last 12 years, Prime Video has been an essential tool in building Amazon’s retail dominance. In 2016, then-CEO Jeff Bezos explained Prime Video’s value to the company like this:
“We get to monetize [our subscription video] in a very unusual way. When we win a Golden Globe, it helps us sell more shoes. And it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non-Prime members.”
That is why Amazon was able to spend $120 million in 2018 for the exclusive UK rights to a block of twenty premier soccer games. Ten of the games occurred on one weekend just before Christmas. Could there be a better time to introduce a consumer to the benefits of Amazon Prime shopping?
Since Amazon added Prime Video to Prime in 2011, it has been viewed as a cost whose value is offset against the profits from the retail business. The fact that Amazon is contemplating adding an ad tier suggests the company’s view of the video service is shifting.
Prime Video is already a retail store
From the beginning, Prime Video was an extension of the retail store. When people searched for a movie on Prime Video – a very natural place to search – the results included versions of the movie for sale and rent in the retail store. The strategy of combining ad-free premium video with the ability to rent and buy current movies was a huge success. It has made Amazon the dominant online video store, with 2.5 times the market share of the nearest competitor.
Prime Video has shifted even further toward the retail side. The company launched its SVOD aggregation product, Channels, in 2015. It markets SVOD services such as Discovery+, Paramount+, and Britbox to Amazon Prime members. If they subscribe to the content, they watch it through the Prime Video app. Again, the service has been very successful, with many partners claiming that half or more of their subscribers come from Amazon.
Prime Video users already see ads
FreeVee, Amazon’s FAST service, has been fully integrated into the Prime Video experience. FreeVee ad-supported content is promoted right alongside Prime Video ad-free content within the app, and both sets of content are returned when a user searches. The integration has caused some confusion among users, with many complaining about seeing the ads. Viewers are also seeing ads during Thursday Night Football games.
Amazon has also started showing promos for shows and movies when a user plays a video. The practice has annoyed still more Prime Video users.
Whether or not Amazon decides to create an ad tier for Prime Video, more ads are likely on the way. The company is negotiating with Channels partners to resell their ad-supported tiers.
How will an ad tier impact Prime Video and Amazon?
If Amazon introduces an ad tier for Prime Video, it has three pricing options:
- Introduce Prime membership levels with and without ads
- Convert Prime Video to an ad-supported service and offer a Prime Video premium ad-free tier
- Take Prime Video out of Prime and make it a standalone service with at least two tiers.
Option 3 is likely unacceptable as Prime Video is a very popular and sticky benefit of Prime membership. Remove the video, and the company could see a wave of Prime cancellations.
Option 1 is difficult to explain to users. Amazon can’t call the tier ad-free because users will still see ads in FreeVee content. They will also see ads in content from Channels partners if they subscribe to an ad-supported tier.
That leaves option 2: start showing ads in all Prime Video content and offer an upgrade to continue watching ad-free. That’s what Disney+ did, and it seems to be working out OK. And maybe this option is a good way to remove confusion. Upgrading to Prime Video Premium could also remove ads from FreeVee content. This option seems to be the best way for Amazon to protect Prime Video’s current roles as Prime benefit, retail video store, and ad driver for FreeVee.
