Amazon Inc. (NASDAQ: AMZN) is facing a potential class action lawsuit due to the recent introduction of commercials to its Prime Video service. Some users have deemed this move as deceptive.
What Happened: The lawsuit has been filed in a federal court in California, claiming that Amazon's decision to add commercials to Prime Video and charge an extra $2.99 per month to skip them breaches the contract and violates state consumer protection laws.
Existing subscribers argue that they signed up for an ad-free service, and Amazon's decision to introduce ads changes the terms of their agreement. The suit states, "Subscribers must now pay extra to get something they already paid for."
Unlike other streaming services like Netflix Inc. (NASDAQ: NFLX) that offer ad-based subscription levels, Amazon did not introduce its ad-supported version as a lower-priced option. Instead, it included ads in the base subscription model and charged a premium to customers who wanted to skip them.
The lawsuit seeks class-action status, an injunction prohibiting Amazon from charging existing Prime subscribers extra to avoid ads, and restitution for those who have already paid.
Meanwhile, Morgan Stanley predicts Prime Video ads will generate nearly $5.2 billion annually.
Why It Matters: Amazon's decision to introduce ads to its Prime Video service was first announced in late December. The company confirmed that the change would take effect on Jan. 29, 2024.
Amazon's entry into the streaming ad wars presents a lucrative opportunity for advertisers struggling to connect with audiences scattered across various streaming services.
However, the decision has not been well-received by all, leading to the current potential class action lawsuit. This comes at a time when other streaming services like Netflix are also looking to further monetize their platforms.