Amazon Planning a Roku Competitor: Report

Amazon.com Inc. (AMZN) is set to launch a free, ad-supported video service for Fire TV users, according to The Information.

People familiar with the matter said the new service is being developed by Amazon’s IMDB subsidiary and will be called Free Drive. The online retailer is reportedly working with studios to license older TV shows for Free Drive, which sources described as very similar to Roku Channel, an ad-supported free video service for Roku Inc. (ROKU) streaming devices and smart TVs.

Amazon Goes After Roku’s Crown

Roku and Amazon already compete in the streaming device market. According to eMarketer forecasts, reported on by Business Insider, nearly one third of all U.S. connected TV users will use Roku this year, while around 26% are set to use Amazon Fire TV.

The launch of Free Drive, Amazon’s latest attempts to narrow this gap and potentially lead the connected TV race, sent Roku’s shares down 2.57% in pre-market trading. Amazon stock was trading 1.25% higher on Wednesday morning.

Prior to rolling out Free Drive, Amazon had been working on ways to boost Fire TV sales in an effort to dethrone Roku. In April, it partnered with Best Buy Co Inc. (BBY) to offload Fire TVs under the Toshiba and Insignia brands. The company also offered deep discounts on the devices during Prime Day. The Information estimates that around 48 million customers now own a Fire TV device, either in the form of a HDMI stick, a  4K-equipped HDMI dongle, or the new, Alexa-enabled Fire Cube.

The Verge predicted that a sizable amount of these 48 million customers are likely to also be paying Amazon Prime Subscribers. Prime subscribers already enjoy access to Amazon Prime Video, an ad-free service that features original content, network TV shows and movies. Free Drive is expected to complement the company’s primary streaming service, providing it with a platform to capture more of the TV ad market. (See also: Walmart to Enter Video Streaming Space: WSJ.)

Free Drive joins a growing list of ad-supported content on Amazon platforms. The online retailer has already introduced ad-supported shows on IMDB, expanded video ads on its gaming site Twitch and begun running ads on NFL games on Prime Video. Ads during sporting events on Prime Video in Europe are expected to follow, The Information’s sources reported. (See also: Amazon Wants to Buy a Movie Theater Chain: Report.)