Amazon to join peers with ads on streaming services

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Amazon will force customers watching its blockbuster TV shows and movies on Prime Video to sit through advertising unless they pay an extra charge, in a radical shake-up of its almost 20-year-old video strategy.

The move will test the appetite of Amazon Prime members, who already pay as much as $139 (£95) a year, to accept the intrusion of advertising for the first time as they watch programmes such as The Rings of Power or Clarkson’s Farm. It follows streaming rivals including Netflix and Disney+ that have also introduced ad-supported tiers this year.

Friday’s announcement comes as Amazon expands advertising across its products and services, which includes charging third-party sellers to promote their items on its retail store. Ads have become a fast-growing and highly profitable source of income for Amazon in recent years. Revenue from ads nearly doubled from $20bn in 2020 to $39bn in 2022.

In a blog post, Amazon said Prime Video content would include “limited” adverts from early next year to enable it to continue investing in TV content and increase investment “over a long period of time”.

Amazon added that it aimed to have “meaningfully fewer ads than linear TV and other streaming TV providers”. Customers in the US will be able to pay an extra $2.99 per month for an ad-free option; pricing for other countries have yet to be released.

All Prime members will be automatically put on the ad-supported service when it comes into effect next year, unlike most other streaming apps. Amazon plans to email Prime members telling them how to sign up for the ad-free option.

Advertising across Prime Video content will be introduced in the US, UK, Germany and Canada in early 2024, followed by France, Italy, Spain, Mexico, and Australia later in the year. 

Changing the pricing model for Prime Video — one of the array of benefits bundled up in a Prime subscription, including free shipping and certain discounts — carries risks because the streaming service is less relevant to Amazon’s core business than it is for Netflix, analysts said.

“Prime has directly attributable revenue and costs, but it’s also an important marketing tool, and it drives increased purchasing: the real revenue from Prime is a lot more than the subscription fee,” said tech analyst Benedict Evans.

Large US streaming services have come under pressure from investors to curtail profligate spending on TV and film content, which was deemed necessary in the race for subscriber growth.

Amazon’s Lord of the Rings spin-off, The Rings of Power, was reported to have been one of the most expensive TV shows made on a cost per episode basis.

But streaming services have suffered a slowdown in subscriber numbers in key markets, given the cost of living crisis and increased competition.

Netflix, Disney, Paramount and Warner Bros Discovery pushed up prices to boost profitability. Many streaming services have also introduced advertising on lower-priced tiers, to create new revenue streams and offer households cheaper ways to subscribe.

Amazon said on Friday that it would not increase the cost of its Prime subscriptions in 2024.

Bob Iger, Disney chief executive, said this summer that its ad-supported service, which cost $7.99 per month, had signed up 3.3mn subscribers. Senior advertising executives also expect Apple to introduce layers of advertising against its services. 

In May, Netflix said its ad-supported plan had nearly 5mn monthly active users globally after six months.