Bank of America sees logic in Amazon's (AMZN) rumored plans to launch ad-tier

June 7, 2023 1:54 PM EDT
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(Updated - June 8, 2023 8:00 AM EDT) --- Amazon (NASDAQ: AMZN) reportedly plans to launch an-advertising-supported tier of its Prime Video streaming services as part of move to bolster growth from entertainment, The Wall Street Journal reported Wednesday, citing unnamed sources.

Plans to launch an ad-supported tier for its Prime Video streaming service follow similar moves by rivals including Netflix (NASDAQ: NFLX) and Disney as streaming platforms look for ways to support content spending amid an ongoing battle for dominance.

Warner Discovery and Paramount, meanwhile, are reportedly in talks with Amazon to add the ad-based tiers of their streaming services through Amazon’s Prime Video channels.

Warner Bros Discovery (NASDAQ: WBD) and Paramount (NASDAQ: PARA) closed 8.4% and 3.9% higher, respectively, following the news. Amazon stock fell 4.25%.

Bank of America analyst Justin Post believes the ad-supported tier makes sense for Prime Video.

"Amazon’s user data, existing relationships with retail advertisers, and extensive ad sales teams provide a competitive advantage for monetizing ad-streaming. Also, tiering may enable Amazon to raise fees on ad-free Prime tiers, which would follow recent fee increases for various Prime and 3P services," the analyst wrote in a client note.

Post also expects Amazon to continue to lean into Video content vs. pulling back in a bid to drive usage.

Additional reporting by Senad Karaahmetovic

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BofA/Merrill Lynch, Senad Karaahmetovic