Unnamed sources recently confirmed with The New York Post that Amazon is working on an ad-supported video streaming service for next year. This service will be in addition to the Netflix-like Prime Instant Video offering that's part of Amazon's $99-per-year Prime subscription plan.
According to the sources, the idea here is to get more paid subscriptions by luring customers in with the ad-based version. As it stands now, Amazon has around 50 million subscribers scattered across the globe, which isn't a lot when you consider that Netflix has 33 million subscribers in North America alone. Only half of the Prime members actually use the video service.
Signs of the alternative video service from Amazon appeared earlier this year. Amazon began testing the ad-supported platform via the First Episode Free feature. What this essentially does is to allow customers to stream the first episode of a TV show with ads for free. To get more without ads, customers must purchase the series or sign up with Prime.
What Amazon may be doing is working on a Hulu-type of service. Although Hulu customers pay a monthly fee, they still must endure around 10 quick commercials throughout the video. To get rid of the commercials on Amazon's solution, customers will need to upgrade to the paid subscription. This is mere speculation, of course, but a "free" video service seems unlikely.
Will Amazon have the upper hand in its battle with Netflix? Both produce exclusive content. However, Amazon has also scored a few TV shows like Under The Dome which appears on Amazon shortly after the episodes are aired. Amazon also snagged exclusive content from HBO such as True Blood and The Wire. The real competition will reside in Hulu Plus, which gets TV shows one or two days after they originally aired.
News of the ad-laced video service arrives after reports claimed that Nielson will begin tracking Netflix and Amazon's Prime Instant Video without their permission. Video streaming services like Netflix tend to keep their viewership numbers under wraps. However, the Nielson probe will show media companies how their content is performing on these platforms, and what kind of impact they have on traditional video on demand.
In terms of advertising, Amazon's streaming video service could offer two methods of advertisement: one that's produced by Amazon that leads the user to a product on Amazon, and third-party advertisements that possibly have a "more" link. Like Netflix and Hulu Plus, Amazon's service may arrive in the form of an app for Smart TVs, and for Amazon's own Fire TV set-top-box.
Is an ad-based video service a good idea? It works for Hulu Plus, and it should work for Amazon. Part of the big picture is that customers will have a choice: just the streaming video service with ads, or the full-blown Prime service with two-day shipping, book lending, streaming music and so on. We suppose we will find out what Amazon has planned next year.