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Amazon plans ad-supported streaming tier amid race for profitability: Report

Amazon (AMZN) is reportedly planning an ad-supported tier for Prime Video, joining the ranks of Netflix (NFLX) and Disney (DIS) amid a race to make streaming more profitable

According to a new report from The Wall Street Journal, Amazon is planning to launch an ad-supported service to compliment its current Prime streaming plans, which costs $14.99 for members and $8.99 as a standalone service.

The company already has a free ad-supported service called Freevee, which recently saw a boost in recognition thanks to the breakout show "Jury Duty."

The report added Amazon, which told Yahoo Finance it does not comment on rumors or speculation, was separately holding discussions with Warner Bros Discovery (WBD) and Paramount Global (PARA) about adding the ad-based tiers of their streaming services through Prime Video Channels.

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Shares of Warner Bros. Discovery and Paramount Global both spiked on the news, although WBD had been climbing higher earlier in the trading day on the heels of Chris Licht's departure from CNN.

Both Paramount and Warner Bros. Discovery had no comment when asked about the report.

Amazon's foray into ad-supported streaming would echo similar moves from competitors like Netflix and Disney, which have pointed to positive data surrounding their respective ad-supported tier.

At Netflix's virtual Upfront presentation last month, the platform revealed its ad-based plan, dubbed "Basic with Ads," has 5 million global monthly active users, or MAUs, a metric that Netflix Worldwide Advertising President Jeremi Gorman said "actually matter[s] to advertisers." The plan debuted in November.

Disney, meanwhile, said it plans to optimize its pricing model in order to "increase subscriber revenue for the premium ad-free tier and drive growth of subscribers who opt for the lower cost ad-supported option." The company launched its $7.99 ad tier in December of last year.

"Amazon introducing ads into Prime video is just the latest step in their increasing embrace of streaming advertising," Insider Intelligence principal analyst Ross Benes wrote in a new note.

"Officially putting ads into Prime Video allows Amazon to centralize its audience and be more consistent with branding. It wouldn’t be surprising if they eventually folded Freevee into Prime Video or shuttered it," he added.

Mark Boidman, partner and global head of media at Solomon Partners, previously told Yahoo Finance the shift from pure-play subscriber growth to cash generation via ads means the streaming wars are no longer about one platform versus the other. Rather, these companies will begin to take ad dollars away from traditional broadcast media.

"That's where you're going to see all of these companies create value for shareholders," he said.

"Lord of the Rings: The Rings of Power" in one of the shows available on Prime Video (Courtesy: Amazon Studios)
"Lord of the Rings: The Rings of Power" in one of the shows available on Prime Video (Courtesy: Amazon Studios)

Amazon has been heavily investing in entertainment, despite cutting costs in other areas.

The company formulated plans to invest $1 billion to produce 12-15 movies a year exclusively for theaters, Bloomberg reported in November. Amazon closed its $8.5 billion deal to acquire MGM early last year.

In a new note published on Wednesday, Bernstein analyst Mark Shmulik said Amazon should continue to focus on its media business, in addition to building out its advertising efforts and Buy With Prime service.

Still, he warned the tech giant's current strategy appears unfocused to shareholders.

"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,'" he wrote.

Shmulik, who has an Outperform rating on the stock, suggested the company trim and streamline efforts surrounding its physical grocery, healthcare and international initiatives in favor of those core strengths.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com

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