Amazon is set to roll out its own video streaming service next year, reports the New York Post. This new offering will be free, but ad-supported.
Industry observers are seeing Amazon's move as a "serious challenge" to established services such as Hulu and Netflix.
Michael Pachter, research analyst for Wedbush Securities, says the decision to make it an ad-supported video service serves to "decouple" it from Amazon Prime, since it wouldn't cost users $99 a year (referring to Amazon Prime's membership fees).
An inside source, however, told the NY Post that this ad-supported streaming service is just a ploy by Amazon to entice users to sign up for the more-expensive Prime membership.
"The main point is to bring in more users that you can eventually up-sell to Prime, or to get to a broader audience that doesn't want to pay for Prime, in order to increase their video share," said the source.
Earlier this year, there were already reports coming in about Amazon's plans to set up a video streaming service, as reported by the Wall Street Journal.
"Amazon is considering an advertising-supported streaming television and music-video service. The proposed service, as Amazon has outlined it to potential partners, could launch in the coming months," said the WSJ article.
Amazon, however, had denied confirmation of such a plan. "We're often experimenting with new things, but we have no plans to offer a free streaming-media service," said Amazon spokesperson Sally Fouts in an email to Variety.
TechCrunch writer Ingrid Lunden notes that Amazon already has a limited free video service, which lets users watch the first few episodes of select TV shows for free, albeit ad-supported.
"That limited free service could be the company dipping its toes into the water, trying out the format to see how well it works and how many people are using it to watch videos," Lunden writes. "I'd suspect that Amazon has seen good take-up, hence the plan to offer a bigger version of it."