Amazon Prime Video ads spark customer backlash, but will ‘free’ deliveries stop a mass cancellation?

Viewers of Amazon’s Prime Video streaming movie and TV service will be watching adverts from now on. It’s a move that is making many customers furious, with scores already taking to social media to express their anger. However, the home delivery specialist ParcelHero says Prime membership’s prime attraction, next-day Amazon deliveries at no extra charge, means the majority of subscribers are unlikely to hit cancel.

ParcelHero’s Head of Consumer Research, David Jinks M.I.L.T., says: “When Amazon launched its Prime membership service back in 2007, it enabled customers to save money on shipping while getting items more quickly. Since then, Amazon has piled on more Prime perks, including access to same-day supermarket deliveries, Amazon Music, Prime Day sales, “Try before you buy” services, Kindle offers and Deliveroo Plus free restaurant deliveries. The most successful added benefit, however, has been Prime Video, a streaming TV and movie service launched in 2014, which offers a whole library of shows to watch at no extra charge (plus access to newer movies and box sets to rent or buy).

“That is now changing. From yesterday, “limited advertisements” (in the words of Amazon) have appeared. The switch isn’t without precedent. Disney+ introduced a cheaper service with ads last year. However, the issue with Prime Video is that it’s the standard Prime service that will switch to running adverts, and members will have to cough up an extra £2.99 a month to ditch the new ads.

“Viewers have certainly voiced their anger at this development. However, the crunch question is: are most Prime subscribers members because of the streaming service  or for the “free” next-day Amazon deliveries? Could Amazon be facing thousands of cancellations? It’s possible but, in many ways, that doesn’t make sense.

“When looked at as purely a streaming service, it’s true this has undermined Prime Video’s value:

• Netflix charges £4.99 a month for its with-ads service, £10.99 a month for its Standard ad-free service and £17.99 for its UHD service.
• Disney+ also charges £4.99 for its with-ads service, but charges just £7.99 for its Standard no-ads service and £10.99 for its UHD service.
• Prime Video is £8.99 a month or £95 for a year for its standard (now with-ads) service.

“Now Prime Video carries adverts, that makes Netflix and Disney+ equivalent with-ads channels £4 a month cheaper. But this calculation doesn’t take into account all the other perks of Prime membership and, particularly, next-day delivery at no extra charge.

“If shoppers unsubscribe from Prime, they will end up paying Amazon’s fee of £4.99 for a Premium next-day delivery. Alternatively, they will have to wait 3-4 days for free standard deliveries. In the era of instant gratification, fewer people are prepared to wait. However, frequent £4.99 payments will soon start adding up for regular customers. It only takes 19 orders and Prime membership has paid for itself.

‘The e-commerce giant certainly doesn’t make money on no-fee next-day deliveries. Back in 2009, when Prime was in its infancy, its shipping and fulfilment costs amounted to 15.6% of its net sales. By 2021, as the number of members joining and using inclusive next-day delivery ballooned, that cost had soared to 32.3% of Amazon’s net sales. That’s a reflection of the costs Amazon is having to absorb, costs that shoppers will have to bear themselves if they cancel Prime.

“Of course, the company isn’t doing this out of the kindness of its heart. Amazon is happy to pour cash into “free” next-day deliveries, video streaming services etc,  because its Prime customers are loyal; they spend twice as much as non-Prime members on the site. It’s a calculation that has paid off. Amazon Logistics shipped 0.87 billion items in 2022 and 15% of all UK deliveries are now made by the company.

“We think that the combination of a video streaming service and next-day deliveries at no added cost, plus the other attractions of Prime membership, mean shoppers will think again before they cancel their Prime subscriptions. Ad haters may even pay the extra £2.99 to get rid of them.

“Prime Video is just one of the hooks Amazon uses to reach its self-confessed goal of being “the pipeline through which everything you buy flows”. ParcelHero’s far-sighted report on the future of Amazon predicted the rapid growth of Amazon Logistics, Prime Day sales, smart doorbells and drone deliveries. To find out what other developments may be in the pipeline, read the full report at:  https://www.parcelhero.com/content/downloads/pdfs/amazon/amazons-prime-ambition-parcelhero-industry-report.pdf