Amazon ( AMZN Quick Quote AMZN - Free Report) is making concerted efforts to entice customers in the streaming market by offering them various streaming options. The company is set to introduce an ad-supported Prime Video service next year in order to provide customers with a sustainable option in this inflationary period. This testifies to the abovementioned fact. Amazon plans to roll out ads in the United States, the United Kingdom, Germany and Canada in early 2024. Ads will be gradually rolled out in France, Italy, Spain, Mexico and Australia. The number of ads is likely to be less than that on traditional TV or other streaming platforms. In addition to the ad-supported plan, the e-commerce giant is also looking forward to introducing a higher-priced ad-free version of Prime Video, which would cost $2.99 more per month in the United States. The pricier ad-free tier is expected to aid growth in the subscriber base of Prime Video. Competitive Scenario
Amazon’s strong contenders in the streaming market —
Netflix ( NFLX Quick Quote NFLX - Free Report) and Disney ( DIS Quick Quote DIS - Free Report) — have already introduced their respective ad-based tiers. Late last year, Netflix launched its ad-supported plan, namely Basic with Ads, in the United States, the United Kingdom, France, Germany, Italy, Australia, Japan, Korea and Brazil. AMZN’s Basic plan with as was $13 less than Netflix’s Premium plan, nearly $9 less than the Standard plan and $3 less than the Basic plan. However, the company recently scrapped the basic ad-free plan for new and rejoining members in Canada and is doing the same for U.K.- and U.S.-based subscribers. This is primarily attributed to slow growth in ad-supported plans. Meanwhile, Disney unveiled its ad-supported Disney+ plan in December 2022 in the United States, with more than 100 advertisers. The ad-supported plan includes Disney+’s exclusive originals and library content. The plan also supports up to seven profiles per account and streaming on up to four supported devices simultaneously. Disney announced that it will launch ad-supported Disney+ in select markets across Europe and Canada beginning Nov 1. It is also going to provide access to a new ad-free bundled subscription plan featuring Disney+ Premium and Hulu for $19.99/month in the United States. Nevertheless, Disney has also raised prices for its ad-free tiers, like Amazon is planning to do. Apart from Netflix and Disney, Alphabet’s ( GOOGL Quick Quote GOOGL - Free Report) Google is another notable player in the streaming industry, which is riding on the popularity of YouTube. The search giant also offers ad-supported and ad-free versions of YouTube. Amazon to Benefit
The latest move will aid Amazon in countering the impacts of rising inflationary pressure that has led to a slowdown in customers’ discretionary expenses, which, in turn, has hurt the rate of new sign-ups in the streaming industry.
The ad revenues that it will generate from ad-supported Prime Video will drive the company’s overall ad revenues, thus strengthening its ad business, which has been acting as a key catalyst. In second-quarter 2023, Amazon generated $10.7 billion in sales from advertising services, which increased by 22% year over year. Our model estimate for 2024 ad revenues is projected at $48.35 billion, indicating growth of 11.2% from 2023. On the other hand, the ad-free tier is expected to drive growth in the company’s subscription revenues, which were $9.9 billion in second-quarter 2023, up 14% year over year. Our model estimate for 2024 subscription sales is projected at $44.9 billion, indicating growth of 9.9% from 2023. We believe the latest move will likely benefit the financial performance of this Zacks Rank #1 (Strong Buy) company, which, in turn, will instill investor optimism in the stock. Amazon has gained 51.5% on a year-to-date basis, outperforming the industry’s growth of 35.7%.
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