In January, when Amazon notified its users about the ad rollout and the new ad-free subscription option, the company experienced a churn rate surge of approximately 8%, according to data from Ampere Analysis. Despite this, according to Ampere’s Q1 2024 Consumer survey, 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.
After the announcement, the platform saw a wave of cancellations, according to Ampere’s Subscription Video Economics UK tool, which tracks SVOD signup and churn, based on half a million panelists. Indeed, on January 3, when Amazon emailed users about the upcoming implementation of ads and the new ad-free plan, the company experienced a churn rate double the average for the platform.
Ampere also explained that, 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.
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.
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 originals like “Saltburn”, “Fallout” and the new season of “The Boys”, further enhancing subscriber growth.
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