(Bloomberg) -- Amazon.com Inc., following other streaming platforms looking to further monetize their content, will run ads on its Prime Video service in key markets – a move that will help offset rising costs and provide a boost to an already robust advertising business.
Ad-supported streaming will be the default on Prime Video in US, UK, Germany and Canada starting early next year, the company said in a statement on Friday. The company has long offered video streaming as part of a package that also includes speedy shipping, music and other perks. Amazon said Prime subsribers will continue to pay $139 annually in the US but will be able to pay an additional $2.99 a month to avoid ads. Pricing in other countries will be anounced later, the company said.
In recent months, streaming services including Netflix Inc. and Walt Disney Co. have introduced ads. Both Netflix and Disney have also raised subscription prices. While ads risk turning off viewers, services see them as a way to offset surging production costs amid rising competition. Amazon said it would aim to have fewer ads than on linear television and other streaming providers.
Chief Executive Officer Andy Jassy has been scrutinizing how much the company spends on original TV programming, Bloomberg has reported. In 2022, Amazon spent $7 billion on original shows, licensed programs and sports, up from $5 billion the year before. Only Netflix and Disney spend more on streaming. Amazon’s shift toward ads leaves Apple TV+ as the only major streaming platform to not have them.
Jassy has brought an unsentimental perspective to Amazon since taking the reins two years ago. In that time, Amazon fired 27,000 people and froze most corporate hiring, eliminated dozens of projects and put multiple businesses under review. His efforts appear to be paying off. In its most recent earnings report, the company wowed Wall Street with strong earnings growth, and the stock has become one of the best-performing among big companies.
The e-commerce and cloud computing giant is generating an increasing share of revenue from the more profitable business of providing services and advertising to independent merchants, who rent space on Amazon’s website and in its warehouses. Advertising sales rose 22% to $10.7 billion in the second quarter. The addition of Prime video ads gives brands another way to reach customers.
Even as Jassy wields the ax on costs, he has committed to sticking with the pricey business of creating original content, which Amazon believes boosts the value of its Prime subscription service and keeps customers loyal. Last year, the company bought Hollywood movie studio MGM for $8.5 billion to expand its library and it spent an estimated $1 billion on the Lord of the Rings: The Rings of Power series that aired last year.
Amazon also committed to spending some $13 billion over 11 years for the rights to stream Thursday night National Football League games, a move that bolsters a growing live sports franchise but added significant costs in a single stroke. Amazon says sports and other live event content will continue to include ads regardless of whether customers have opted to pay for Prime Video’s ad-free option.
Prime Video ads will appear in other markets, including France, Italy, Spain, Mexico, and Australia, later in the year, Amazon said.
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