It was back in March when Amazon was first rumored to launch an ad-supported media streaming service for music and videos. This type of service would exist hand in hand with its $99 Prime membership subscription. It would also be Amazon's scheme to undercut the cost of Netflix and Hulu Plus subscriptions. Currently, Netflix and Hulu Plus charges users with a monthly usage price of $7.99.

Amazon seemed to be weighing its options and had shown an increased possibility on offering a new and cheaper streaming service which it sees as an opportunity to lure people into its ecosystem. Once users become hooked, they would more likely jump to a Prime subscription. It's also seen as a way to entice Prime-willing customers who don't mind about the service's free shipping as long as it proves to be a good Netflix alternative.

"We currently offer the first episode of some television shows free with ads through our First Episode Free feature on Amazon Instant Video, and there are display ads on some short videos such as movie and game trailers," said Sally Fouts of Amazon. "We're often experimenting with new offers and experiences for customers, but we have not announced any plans to offer an ad-supported video streaming service."

While it is true that an announcement is yet to be made, Amazon has not ruled out either the possibility to offer the service in the long run. Apart from having the goal to increase Amazon's relevance against its rivals, the move will definitely bring in a host of benefits and advantages.

First among these is the opportunity to grow its existing advertising network known as the Amazon Media Group. The network already sells advertising through several Amazon properties such as DPReview, Imdb.com, Quidsy, and Amazon.com. Together with its mobile ads and Kindle-based ads, the company is said to be raking in at least $1 billion in revenues.

"If they do an ad-supported service, they will decouple it from Prime and that is a Netflix killer," said analyst Michael Pachter of Wedbush Securities. "It won't be $99 a year."

Rumor has it that the e-commerce giant is prepping up to launch the new ad-supported streaming service early next year. Recently, it beats Netflix on a minor coup after closing a deal to stream classic HBO shows such as 'Six Feet Under' and 'The Sopranos.' However, the company's 2.58 percent traffic still has a long way to go to beat Netflix's record of 32.39 percent.

According to Sandvine, a network optimization company, "Amazon Instant Video is now the second largest paid streaming video service in North America, accounting for 2.6 percent of downstream traffic." The service is also seeing the most growth as its traffic has more than doubled from the past 18 months.

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