Seattle, WA – After years of touting an ad-free experience, Amazon announced on Friday that it will introduce a new, cheaper Prime Video tier in early 2024 that includes ads. This change brings Prime Video in line with competitors like Hulu, Peacock, and Paramount+ which offer ad-supported options. However, unlike other services, Prime Video will continue to offer an ad-free plan, albeit at a higher price point.
The ad-supported Prime Video plan will cost $14.99 per month, the same as the current subscription fee. Customers who wish to retain the fully ad-free experience will need to pay an additional $2.99 per month, bringing the total to $17.98. Amazon stated that the main Prime Video service will have “limited advertising” compared to traditional TV and other streaming platforms.
Ads will not be shown on children’s content or most licensed movies. Live events, sports, and a small number of licensed TV shows will still contain ads for all Prime Video subscribers regardless of tier. The change will take effect first in the US before expanding internationally later in 2024.
This shift highlights the challenges media companies face in making their streaming platforms profitable amid rising content costs. While services like Prime Video, Netflix, and Hulu attracted millions of subscribers early on, the lack of ads left revenue dependent on subscription fees alone. In 2022, Netflix lost subscribers for the first time in over a decade, sounding alarm bells across the industry.
Introducing an ad-supported tier allows services to earn additional revenue from advertisers and draw in price-conscious customers. According to eMarketer, ad spending on streaming services in the US grew over 40% in 2022 to $15 billion and is expected to top $31 billion by 2027. An Amazon executive stated that adding ads to Prime Video will help fund continued investments in original content.
However, it risks diluting one of Prime Video’s key selling points versus competitors. Ad-free viewing has been central to Amazon’s messaging since launching the service in 2006. Rival Netflix also held out on ads for years, arguing that its recommendation algorithms worked best without commercial interruptions. It wasn’t until last November amid slow subscriber growth that Netflix unveiled an ad-supported plan.
While customers will still have the option to avoid ads, analysts expect uptake of the ad-supported Prime Video tier will be strong. According to CNBC, over 80% of Hulu’s subscribers are on its cheaper ad-supported plan versus the pricier commercial-free option. Cost will likely be the determining factor for many Prime members.
Ads pose technical challenges as well. Streaming services will need to implement targeted ad tech and measurement capabilities at scale. Netflix’s ad-supported rollout has been slower than anticipated due to engineering complexities. Amazon however is in a better position given its sizable ad business, including video ads already shown on Twitch and live sports.
Prime members will receive an email in the coming months with details on how to switch to the new ad-supported plan before it launches in early 2024. The change only applies to Prime Video – other Prime benefits like free shipping remain ad-free. This also does not impact Amazon’s IMDB TV service which has contained ads since launch.
But alongside price hikes and crackdowns on shared accounts, the ads underscore a new reality – the era of unlimited, ad-free video streaming for less than $15 per month is likely over. Media companies are being forced to pursue new business models to make billion-dollar investments in content viable over the long-term.
It remains to be seen how many Prime members will embrace ads to save a few dollars. Amazon is betting that lower prices will drive growth, offsetting any subscribers who switch to the higher ad-free tier. But striking the right balance between pleasing customers, creators, and advertisers may prove tricky. One thing is certain – the streaming landscape continues shifting in 2023 with more changes likely ahead.