In early 2024, Amazon announced the rollout of ads for all existing Prime Video users, who had previously enjoyed the streaming service ad-free. Moreover, on February 5th, along with the rollout of ads, Amazon began to offer existing subscribers in the UK a new ad-free tier for an extra £2.99/month. So while other subscription video-on-demand (SVoD) services have rolled out cheaper ad-supported tiers in the last year, Amazon’s UK launch stands out by making the ad-tier the default option for existing subscribers, with a price increase for any users wanting an ad-free experience.

As with price increases on other platforms, this decision prompted an immediate wave of cancellations, according to Ampere’s Subscription Video Economics UK tool, which tracks SVoD signup and churn, based on half a million panellists. Indeed, on January 3rd, when Amazon emailed users about the upcoming implementation of ads and the new ad-free plan, the company experienced a churn rate of around 8%. While this is over double the average churn rate for Amazon, it is less severe than Netflix’s subscriber loss in 2022, when the company saw its churn rates triple in the UK following a price increase across all tiers.

However, the subsequent performance of Amazon’s ad-free tier has been notable. Ampere’s data suggests that UK Prime users generally prefer the more expensive, more feature-rich subscription options. In Q1 2024, 70% of active UK Prime users who also subscribe to other SVoD services tend to choose the more premium tiers in those other services. Indeed, among those UK Prime users who also take Netflix, only 10% take Netflix’s ad-supported tier.

This is reflected in the data: Since the initial setback, 30% of Prime Video’s new uptake has been to the ad-free tier (excluding free trials), with 50% of the ad-free signups coming from existing users upgrading from the ad-tier. At the same time, the vast majority of existing UK Prime subscribers are now automatically on an ad-supported tier. In comparison, 18 months after its launch, Netflix’s ad-tier has grown to just over 10% of its UK user base. 

So while Amazon is growing revenue from those subscribers willing to pay extra for an ad-free experience, it is also clear that ads will be increasingly important for the service: According to Ampere’s Q1 2024 Consumer survey, a substantial 50% of UK Prime Video subscribers said they would be willing to see ads on a subscription service if it made their subscription cheaper. This indicates an opportunity for Amazon to monetise a segmented user base by leveraging ad revenue from a sizeable base of more ad-tolerant users, while also catering for customers willing to pay for more premium features and uninterrupted viewing. 

Amazon’s balancing strategy coincides with the broader industry trend of reshaping and diversifying streaming subscription plans to boost revenue, with Netflix slowly phasing out its Basic tier to encourage migration to the ad-tier, Paramount+ expanding its Premium tier into Europe, and Disney+ launching  its ad-tier in the UK in Q4 2023.

Though Amazon’s strategy to push all users into ad-supported viewing initially caused some friction among existing users, the service stands to benefit from the introduction of a tiered subscription model. The short-term subscriber loss will be mitigated by both the additional ad-revenue Amazon is set to earn (as well as the opportunity to drive customers into its retail ecosystem through ads) and the incremental subscription revenue from the ad-free tier, resulting in a higher ARPU from all remaining subscribers. The subsequent influx of long-term revenue can then be strategically reinvested to continue producing popular content, such as recent successful originals like Saltburn, Fallout and the highly anticipated new season of The Boys, further enhancing subscriber growth.