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The Wall Street Journal reports that Amazon "is planning to launch an advertising-supported tier of its Prime Video streaming service as it looks to further build its ad business and generate more revenue from entertainment."

The discussions of such an offering, the Journal writes, "come in the wake of cost-cutting reviews across the company’s businesses, resulting in tens of thousands of layoffs.

"Advertising has been an area of continued growth for Amazon despite macroeconomic challenges. The company’s ad revenue was $9.5 billion in the first quarter, up 21% year over year. The company is the third-biggest player in terms of digital ad revenue in the U.S. after Google and Meta, according to Insider Intelligence.

"Advertisers say they are eager to have Amazon offer an ad tier for Prime Video service, which would follow similar moves by other streaming platforms including Netflix and Disney. Specifically, ad buyers say they want more access to premium movies and programs that have remained largely ad free, content that often garners more buzz."

Amazon also is said to be "having discussions with Warner Bros. Discovery and Paramount Global about adding the ad-based tiers of their streaming services through Prime Video Channels, according to people familiar with the situation. Through Prime Video Channels, users can sign up for streaming services - including the ad-free versions of Max and Paramount+ - and view through the app."

One other possibility, the story says, is that in addition to offering a ad-supported tier, Amazon could raise the price for the ad-free version.

The Journal notes that Amazon CEO Andy Jassy, who has not been shy about eliminating businesses that were conceived and/or nurtured by his predecessor, company founder Jeff Bezos, "has told people internally that he sees the value of entertainment and particularly live sports … but also has been spending a lot of time reviewing the company’s unprofitable divisions. 

"Meanwhile, Amazon is discussing bidding for the rights to stream National Basketball Association games, whose rights come up for renewal in 2025, the people said, adding that launching a Prime Video ad-supported tier could help pay for those rights."

KC's View:

My first reaction is that Jassy sometimes seems to be checking in between the cushions to see if there's any spare change.  But maybe that's not entirely fair.

I think that Amazon has to be careful here.  It may feel that it can squeeze a little more money out of ad-free subscribers, and squeeze some money out of people who want to pay a little less for an ad-supported video platform.  But in some ways, this all seems like small ball, and at odds with what always was positioned as Amazon's strategy in such things - build so much value in Prime memberships that a) people would be irresponsible not being members, and b) sales would go up because Prime members spend more overall.  Maybe this isn't the case at the moment, but is it smart to abandon the long-term strategy for a short-term cash fix?

Things are a little complicated at Amazon right now.  The Information has a story about how Amazon apparently overestimated both the audience appeal of NFL games streamed on Prime Video and advertisers willingness to pony up for the right to be associated with the games, resulting in both a major financial loss and, to be fair, an educational experience.

According to the story, "Amazon ended up losing hundreds of millions of dollars during its first year of streaming Thursday Night Football, estimate TV, sports and ad industry insiders, given both the $1 billion-dollar a year rights fees and production costs. An Amazon spokesperson said that its investment in NFL 'fuels many business initiatives across Amazon,' although he acknowledged that there are 'upfront costs that affect the initial period.'

"Hans Schroeder, executive vice president of media distribution for the NFL, said the league was 'thrilled' with the first season of Thursday Night Football on Amazon Prime, noting 'we have been focused on increasing the digital distribution of NFL games.'

"Amazon’s experience could have enormous implications for the future of live sports on television. If Amazon can’t make money on the NFL, it’s unlikely to want to keep bidding on more expensive live sports rights."

The problem was that Amazon asked potential advertisers to spend roughly twice the amount they money that they planned to spent on full-season sponsorships.  In many cases, they balked:  "Amazon’s efforts to build a video-advertising business - by selling commercial time on NFL games, its free streaming service, Freevee, and its live-video platform, Twitch - have not easily won over advertisers, according to ad executives.

"An Amazon spokesperson said last season’s Thursday Night Football on Amazon Prime had brought 'more than 11 million viewers to Prime Video each week, including audiences that were 'significantly younger, watched longer and commanded higher household incomes than NFL viewers on broadcast and cable networks'."

in the coming season, Amazon hopes things will break differently.  For one thing, it has a better slate of games and matchups to cover.  (At least it hopes so.  One never knows until the games are played.). It is being more flexible about the terms it is offering advertisers, and is reducing by as much as 20 percent its audience guarantees.  The Information writes that "last year, there was no precedent in terms of a tech company live streaming NFL games exclusively for a full season, said an Amazon spokesperson. This year, the company has actual data that is helping inform its negotiations with advertisers."

But there is the perception in some quarters that there are larger issues in play here.

CNBC has a story about how Bernstein analysts are arguing, via an open letter to Jassy, that "Amazon has become too unfocused and is missing out on opportunities in its core businesses."

"We fully support Amazon’s efforts to uncover and capture the next AWS-sized opportunity,” wrote Bernstein’s Mark Shmulik.  "But what we’ve seen recently is a company simply pursuing too many ideas, with weaker ideas taking away the oxygen, capital, and most importantly focus from the truly disruptive initiatives that ‘only Amazon can do."

Scott Galloway, on the "Pivot" podcast he does with tech journalist Kara Swisher, said this week that he believes that Amazon has to return to what it does best - finding big opportunities for disruption and following the Jeff Bezos mantra that "your margin is my opportunity."

In other words, stop looking for spare change in the couch cushions, and get back to being Amazon.