Amazon may have another video service up its sleeve. According to the New York Post, the company is developing a new ad-supported video offering to complement its subscription-based Amazon Prime Instant Video and transaction-based Amazon Instant Video.
The new service, according to the Post's sources, would be entirely separate from Amazon Prime. But it would be geared toward getting viewers to upgrade to Prime membership for an annual $99 fee.
Wedbush Morgan Securities analyst Michael Pachter was quoted by the Post as saying, "If they do an ad-supported service, they will de-couple it from Prime and that is a Netflix killer." However, Pachter may be underestimating the appeal of ad-free subscription video. If there's one thing that Netflix subscribers have come to love, it's the ability to binge-watch TV without commercial interruption.
For advertisers, on the other hand, an ad-supported service by Amazon.com Inc. (Nasdaq: AMZN) could be a goldmine. Combined with the substantial user data that Amazon collects, an ad-based video service should be able to deliver a finely targeted addressable advertising opportunity. As much as cable companies have improved their ad insertion offerings of late, they can't compete with the data Amazon has on hand already or with Amazon's ability to tie online ads directly to purchasing links. (See Canoe Floats Its 10 Billionth Ad.)
Meanwhile, even without a new ad-based service, Amazon has made progress recently on the video front. A recent Sandvine study showed that Amazon's share of traffic on fixed broadband networks has doubled in 18 months to 2.6%. That's a far cry from Netflix Inc. (Nasdaq: NFLX), which claims roughly a third of Internet traffic, but it still shows substantial growth.
— Mari Silbey, special to Light Reading