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Free Amazon Prime Streaming Video: Crazy or Crazy Brilliant?

AMZN is denying rumors of ad-supported streaming video, but it might change its tune as soon as next week

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Well, something is going down at Amazon (AMZN).

amazon-prime-streaming-video-amznAmazon is holding an event next week where it’s promising an update on its video business. However, ahead of the event, sources are claiming (and Amazon is denying) that Amazon Prime streaming video could be coming to that set-top box — for free.

If it is true, this makes for interesting times if you happen to be an Amazon Prime customer … or a streaming video company like Netflix (NFLX), or the maker of a set-top streaming video box like Apple (AAPL) and its Apple TV, or heavily invested in the video game console business like Microsoft (MSFT).

The catch to Amazon Prime’s supposed new announcement is advertising. To get free streaming video, you’d have to sit through ads.

There is some credibility to the rumors. After all, Google’s (GOOG) YouTube is ad-supported to the tune of an estimated $5.6 billion in revenue in 2013. And Amazon has gone down the ad-supported path before, with the Kindle and Kindle Fire “With Special Offers” editions, which discount the price of the hardware in exchange for advertising on the home screen.

If the company is on the verge of announcing a free, ad-supported version of Amazon Prime streaming video, it could be a rare misstep on AMZN’s part. Or it could be a brilliant move that disrupts the streaming video industry.

Here’s why:

People Hate Ads

Outside of the Super Bowl — when ads become a form of entertainment in and of themselves — most people hate having to sit through commercials.

One of the great promises of DVRs and TiVo (TIVO) was the ability to watch TV on a delay and be able to skip ads. Lack of commercials also is high on the list of reasons why people cut the cord and bail for streaming video services like Netflix. And when you look at Netflix competitors that use an advertising model — such as the network-backed Hulu — you’ll find message boards dominated by complaints about the ads.

Apple reportedly has been in discussion with networks about ad-skipping — specifically, the possibility that a future Apple TV could broadcast TV shows (acting like a cable company) while removing those ads, but compensate networks for lost revenue.

The point is, if AMZN were to offer Amazon Prime streaming video for free, with ads, it’s liable to annoy people enough that they ignore it, free or not. That would cut into AMZN’s ability to pay for the video rights they would have negotiated.

… And Amazon Prime Customers Aren’t Exactly Happy Right Now

AMZN is already hiking the yearly membership fee for its Amazon Prime customers. Thing is, the current perk of Amazon Prime streaming video is partly why people were willing to pay $79 a year.

Jacking Amazon Prime up to $99 yearly, then taking one of the perks — Amazon Prime streaming video — and offering it to everyone else for free would be quite the PR misstep. Even if that free streaming video remains ad-free for Amazon Prime members and requires enduring commercials, banner ads or pop-ups for everyone else.

Amazon reportedly has been casting around for more perks to offer Amazon Prime customers (streaming music, for example) to make that cost increase more palatable. Still, removing or diluting an existing perk like exclusive access to streaming video has high potential to backfire.

… And Cable Companies Will Hate It

We all know what the cable companies think about Netflix. The deal struck with Comcast (CMCSA) to secure faster and more reliable Internet access for Netflix customers is probably just the first in a growing battle between Internet service providers and streaming video companies.

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Article printed from InvestorPlace Media,

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