Amazon Faces Class Action Lawsuit Over Prime Video Ads

While the streaming era began with promises of commercial free television and movie viewing, that promise has gone by the wayside as streaming companies pursue more and more money.

A federal class action lawsuit has been filed in California over Amazon’s choice to add commercials to its Prime Video platform.

The lawsuit was filed the week of Feb. 10 and claimed that the retail giant’s introduction of ads and the subsequent introduction of a $2.99 fee to circumvent the ads represents a breach of contract. According to the complaint, it also violates California’s consumer protection laws, as existing users signed up for an ad-free service only for the terms of the agreement to be altered when Amazon introduced advertisements.

“For years, people purchased and renewed their Amazon Prime subscriptions believing they would include ad-free streaming,” the complaint alleges. “Subscribers must now pay extra to get something they already paid for.”

Other streaming services like Peacock, Disney+, Max, and Netflix offer ad-based subscription services as tiers of their subscriptions, however Amazon does not have a tier for ads. Instead of building out a separate advertisement tier, Amazon opted to include ads in its service and charge subscribers extra if they wanted the ads removed.

“Consumers who subscribed to Amazon Prime before the change reasonably expected that their Amazon Prime subscription would include ad-free streaming of movies and TV shows for the duration of the subscription,” a part of the lawsuit noted.

The suit also seeks an injunction to stop Amazon from charging existing Prime subscribers the fee, and giving restitution to those who have already paid. While the streaming era began with promises of commercial-free television and movie viewing, that promise has gone by the wayside as streaming companies pursue more capital. As companies invest hundreds of millions (in Amazon’s case, shy of $19 billion) into its original content. The conglomerate has recouped its initial investment from getting money from higher subscription fees and ad dollars.

According to an analysis from Morgan Stanley, the ads from Prime Video will create $3.3 billion in revenue in 2024 alone. By 2026, just two years from now, that total will increase to $7.1 billion. Another firm, MoffettNathanson, predicted a slightly more conservative estimate, but the upshot is the same. Amazon’s investment in advertisements will generate significant income for the company.

MoffettNathanson’s numbers say Amazon will generate $1.1 billion in 2024 and $1.3 billion in 2025; their research ahead of Amazon’s release of commercials indicated that they believed it would explode profits for the company. “This Monday, we are going to find out what happens to an advertising market when a brand-new entrant with excess capacity, unrivaled first-party data advantages and massive unduplicated reach decides to put a ‘for sale’ sign in its window.”

As Amazon CEO Andy Jassy told their analysts on an earnings call, “We have barely scraped the surface when it comes to better figuring out how to integrate advertising into video, commerce and groceries.” Pending the outcome of the class action lawsuit, the only recourse consumers have is just to let the ads play, which will generate significant income for Amazon. According to MoffettNathanson, Amazon is expected to pace all streaming services in the ad-supported VOD market, pulling in approximately $4 billion of the estimated $16 billion market by 2025.