Cable companies do not like the fact that low-cost video streaming services cost them cable subscribers while adding to their network infrastructure requirements. Netflix alone is estimated to account for up to one-third of U.S. Internet traffic during peak time.
If AMZN were to successfully launch a free, ad-supported Amazon Prime streaming video service and it caught on, the kind of numbers involved could be Netflix all over again. ISPs are not going to want to foot the cost of improving the network capacity to help out Amazon, so the result is likely to be what some Netflix customers have experienced — streaming video that stutters, stops for extended periods for caching and becomes unwatchable in high definition.
Worse, if ISPs were to single out streaming video from Amazon, they wouldn’t be differentiating between the freebie ad-supported service and the premium Amazon Prime streaming.
Amazon’s margins are traditionally razor-thin, so shelling out big bucks to ISPs (like Netflix has started to do) will hurt. But if Amazon doesn’t pony up, the streaming video might just end up aggravating free users and paying Amazon Prime customers.
… But Free, Ad-supported Amazon Prime Streaming Video Might Still Be a Brilliant Move
On the other hand, streaming video is about due for a disruption, and Amazon is a company that thrives on disrupting existing business models.
Free Amazon Prime streaming video would certainly lead to a lot of scrambling.
Netflix has had things its own way for a while now, and not everyone wants to pay what AAPL is asking to buy or rent commercial-free TV shows and movies through its Apple TV.
Hulu hasn’t been the runaway hit networks had hoped it would be, and there are dozens of other video streaming services competing for consumer eyeballs. With its visibility, marketing power, catalog of video content (plus a growing catalog of original programming) and a willingness to stick out early losses in the name of long-term gains, AMZN might just be able to muscle its way in, using a free version of its Amazon Prime streaming video service to shake up the status quo.
And although people hate advertising, that $5.6 billion Google collected last year from YouTube shows that there is money to potentially be made from sticking ads in streaming video.
As mentioned, AMZN is denying the rumors that free Amazon Prime streaming might be announced last week. However, something is up.
We’re going to have to wait until Wednesday’s event to find out exactly what it is, but given the reaction over even the possibility of ad-supported Amazon Prime streaming video, you can expect a lot of industry insiders will be watching that event very closely.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.