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Amazon Eyes Ad-Supported Video – NY Post

Mari Silbey
11/25/2014

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.


Want to know more about streaming video? Check out our dedicated video content channel here on Light Reading.


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

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Kruz
Kruz
11/29/2014 | 11:16:30 AM
Re: what if downgrade happens instead of upgrade
Agreed. Users are getting used to streaming ad-supported videos but they will shift away when something reliable and free comes with no ads included. And this will be a matter of time only.
nasimson
nasimson
11/26/2014 | 11:56:42 AM
Re: what if downgrade happens instead of upgrade
> I don't see Amazon Prime customers downgrading anytime soon.
> Once you're hooked on a product it's hard to shift downward.

@kq4ym: It depends on how obtrusive the ads are. Some segments eg youth may opt for it as they are already used to see ads and sponsored videos in facebook, Vimeo and Daily Motion.
kq4ym
kq4ym
11/26/2014 | 11:38:21 AM
Re: what if downgrade happens instead of upgrade
I don't see Amazon Prime customers downgrading anytime soon. Once you're hooked on a product it's hard to shift downward. The ideas of ad supported free service seems a good one, given the data base Amazon has, and the opportunity to compete with other ad supported services.
nasimson
nasimson
11/26/2014 | 10:10:47 AM
what if downgrade happens instead of upgrade
Amazon is expecting the users to upgrade users from ad-supported version to ad-free Amazon Prime. But what if downgrade happens instead of upgrade? What if users from Amazon Prime downgrade to ad-supported version. For sure, Amazon would have worked on cannibalization numbers and the overall business case would have been positive. But it will be interesting to see the actucal downgrade numbers.
Mitch Wagner
Mitch Wagner
11/25/2014 | 3:41:29 PM
Reinventing the wheel
Amazon seems here to be reinventing the broadcast network TV model of the 20th Century. 

Plenty of businesses seem to want to use streaming to block consumers from fast-forwarding through ads. 
mendyk
mendyk
11/25/2014 | 3:04:33 PM
Re: Curious..
That's only because either the source or the reporter has had a few too many. Usually the latter.
KBode
KBode
11/25/2014 | 3:00:30 PM
Re: Curious..
They've had a lot of interesting telecom leaks lately, but the leaks always wind up flubbing half of the specifics or the author doesn't understand the context (Mari gives good analysis and context here I think). Yes, I know, it's The Post and this should be expected. :)
mendyk
mendyk
11/25/2014 | 2:55:33 PM
Re: Curious..
Wait ... you're questioning the veracity of the New York Post? Informed readers always turn to the Post for the latest telecom industry news and analysis. Not to mention the daily affirmation that is Classic Peanuts and the cutting-edge investigative journalism on Page Six.
KBode
KBode
11/25/2014 | 1:54:23 PM
Curious..
I'm really not sure how this would work. I feel like the Post muddled some of the details. A subscription service that comes with a subscription fee, but comes with ads and constantly upsells you to buy Amazon Prime? I'm not sure how that's more compelling than what we have now?
VictorRBlake
VictorRBlake
11/25/2014 | 11:47:35 AM
Stats
Mari -- enjoyed reading the article. My only observation is that Sandvine's data tends to be skewed towards fixed and residential broadband. So I wouldn't state Sandvine's percentages as "of Internet traffic." First, Sandvine measures principally traffic to and from broadband resi (and some biz) services, but misses out almost entirely on most business Inet services, so it isn't a % of internet traffic. It is a % of consumer Internet traffic. Second, as I mentioned, that's of fixed wired. It misses fixed wireless almost entirely and mobile which is in itself likely larger than all of the fixed video consumption in terms of hours (but not in terms of bits because the bit consumption rate is lower on mobile).


-Victor
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