Streaming Is Becoming Cable
Pricing get to get more from your consumers
Prime Video subscribers got a notice in March 2026: the ad-free tier they paid for is going away. Starting April 10, it will be replaced by something called Prime Video Ultra. They will now have to pay for this service.
Here is a timeline of what changed at Prime Streaming:
January 2024- Amazon added ads to Prime Video by default.
Early 2024- Subscribers could pay $2.99/month to remove ads.
April 10, 2026- That option disappears.
New option- Prime Video Ultra: $4.99/month. Includes 4K, Dolby Vision, Dolby Atmos, and ad-free viewing. Annual plan available at $45.99 (23% savings).
The experience that used to come bundled with Prime now costs extra. The service that replaced ads now costs more than the fee that removed them.
From a business perspective, this makes sense. Ads create a new revenue stream. A premium tier lets Amazon earn more from subscribers who want the best experience. But if you zoom out, this starts to look familiar to those of us who grew up with cable. Streaming was supposed to be better, but its pricing structure is starting to look a lot like the old system.
THE ECONOMICS: WHY COMPANIES LOVE BUNDLES
In economics, bundling means selling multiple products together instead of pricing each one separately. You see it everywhere: cable television packages, software suites, fast-food combo meals, and subscription platforms like Amazon Prime.
Economists study bundling because it helps companies match prices to what different customers are willing to pay. Here is a simple example to show how it works.
Customer 1- values product A at $10 and product B at $2
Customer 2- values product B at $2 and product A at $10
If each product is sold separately, pricing becomes difficult. Either you leave money on the table, or you price one customer out entirely. But if the company bundles both products together, both customers will pay $12 for the package. The bundle captures more of the total value without losing either customer.
This strategy works especially well in digital markets, where adding another feature costs the company almost nothing. That is why you see it across streaming services, software platforms, and subscription ecosystems.
Why streaming platforms love bundles:
Capture more willingness to pay. Some subscribers care about price. Others care about quality. Different tiers reach both groups.
Sell weaker content alongside stronger content. A major sports package or a hit show can pull other titles along with it.
Make price comparison harder. Packages make it difficult for consumers to isolate the cost of any single feature.
Create loyalty through lock-in. The more services bundled together, the harder it is to leave the platform.
Why is Amazon unbundling?
Amazon isn’t really abandoning bundling. In fact, what they are doing is a strategic rebundling and price discrimination strategy. They are separating parts of the bundle so they can charge different customers different prices for the same ecosystem.
Instead of keeping video fully bundled inside Prime, Amazon can now separate the value of video and charge for it more directly.
In this case, when everything is bundled, Amazon leaves money on the table. Using data, they can identify who is willing to pay more and which features they value most. This allows them to price-discriminate and increase their profits.
Some people would happily pay more for:
Ad-free viewing
Higher video quality
Dolby sound
premium sports or channels
By separating those features, Amazon can capture a higher willingness to pay from heavy users while still keeping the base bundle attractive. Instead, they are moving toward a layered bundle.
Understanding Pricing Strategies
A big part of economics is understanding how firms set prices. Bundling is just one tool in a much larger toolkit. Economists study pricing mechanisms because companies spend enormous resources figuring out exactly how much you are willing to pay, and then designing products to capture as much of that as possible.
Tiered pricing, introductory offers, annual discounts, and feature upgrades are not random decisions. Each one is a carefully designed mechanism that sorts customers by what they value and charges accordingly. When Amazon offers a 23% discount for paying annually, that is not generosity. It is a pricing strategy designed to lock in revenue and reduce the chance you cancel.
When streaming first entered the market, it used a classic strategy economists call penetration pricing: launching at a low price to win customers fast, with plans to raise prices once the market is captured. That low price is what convinced millions of households to cut the cord. Cable never recovered. Uber used the same playbook when it entered new cities, undercutting taxis until riders made the switch permanent.
For everyday consumers, understanding these mechanisms is useful. It will not stop companies from using them, but it does change how you read a pricing announcement. The next time a subscription service rolls out a “new and improved” tier, you will know to ask the question economists always ask first: improved for whom?
The worst part is we saw this coming for years!
Love this piece. Price discrimination is one of those concepts that, once you see it, you start noticing it everywhere, and streaming is a perfect example of how it keeps evolving.
What stood out to me is how naturally this connects to second-degree price discrimination. We have always seen this in retail: bulk discounts, different package sizes, “buy more, pay less per unit.” Consumers reveal their willingness to pay through their choices.
Streaming platforms are doing something very similar, just in a more subtle way. Instead of quantities, it is tiers, ads vs. no ads, number of screens, content access. Different versions of essentially the same service, designed so users self-select.
It is interesting because it feels new, but economically it is the same mechanism we have been teaching for years, just repackaged for the digital world.