This 1 Move Could Add Nearly $5 Billion to Amazon’s Bottom Line in 2024, According to a Wall Street Analyst

Amazon (NASDAQ: AMZN) Prime is making a big change to its membership later this month, and while some members might not like it, investors should love it.

Starting on Jan. 29, Prime Video subscribers will start seeing ad breaks in the middle of their favorite shows like Jack Ryan and The Lord of the Rings: The Rings of Power. If they don’t want to see ads, Amazon will offer the chance to upgrade Prime subscriptions to an ad-free tier for $2.99 per month.

The move follows similar ad-tier introductions from Disney (NYSE: DIS) and Netflix (NASDAQ: NFLX). Both said they’ve seen a lot of success with their ad-supported tiers, and Bank of America analyst Justin Post thinks Amazon can see comparable benefits. He estimates the change will add $4.8 billion in revenue for Amazon between the higher-priced tier and additional ad revenue. And since the marginal cost of introducing ads to Prime Video is minimal, almost all of that will flow to Amazon’s bottom line.

Here’s what investors can expect when Amazon introduces ads in Prime Video.

The undeniable success of ad-supported streaming

The big media companies have been making their ad-supported tiers more and more attractive to consumers over the last year.

Amazon is following the same pricing strategy Disney adopted when it introduced its ad-supported tier for Disney+ in 2022. If subscribers didn’t want to pay an extra $3 per month, they could pay the same price they had been and sit through a few ads. Last year, Disney raised prices again, but only on the ad-free versions of its streaming services.

Netflix introduced a low-priced ad-supported version of its service in late 2022. Subsequently, it removed the ability to sign up for its basic ad-free plan and raised the price on ad-supported plan for existing subscribers.

The move points to a clear preference for streaming services to push consumers to their ad-supported tier. Disney CEO Bob Iger told analysts as much during last year’s second-quarter earnings…