Amazon might have firmly denied the concept of ad-supported Instant Video service back in March, but new sources claim the free video streaming service is coming soon.

One of the New York Post sources - who is a potential advertiser working with Amazon - claims the service is definitely coming. The move will allow Amazon to gain a foothold in the video market against rival Netflix, who currently dominates with 34 percent share of peak Internet traffic.

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Amazon has offered a small library of Instant Video TV shows to watch with ads. The idea is to bring customers into the Amazon Prime $99 per year offer, by giving them a taste of the features available. Amazon runs similar trials for other Prime services.

The new larger scale ad-supported service will feature almost the entire Instant Video library. Amazon will pay the same amount to producers to license the content, which might mean a decrease in profit from Instant Video, if the service is not a success.

Instant Video currently holds around 2.5 percent of the peak Internet traffic, putting it is behind YouTube, Netflix and even Facebook video. This is not good for the biggest competitor to Netflix on TV shows and movies.

Netflix has managed to entice customers with a huge line of TV shows and movies, but also original programming. House of Cards, Orange is the New Black and Hemlock Grove are all Netflix originals - the studio also works on cancelled series' to bring jilted fans to the streaming service.

Amazon has been trying to catch up with the original programming, but all too often once users are hooked onto Netflix, they do not leave. Retention rates for Netflix are much higher than Instant Video and other paid streaming services, which is why Netflix has over 35 million monthly subscribers in the U.S.

The free ad-supported option will bring more customers, but when it comes to profit, Instant Video might become another sinker for Amazon, something it cannot afford with the recent $544 million Q3 operating loss.

TagsAmazon Prime, Amazon Instant Video, video streaming service, netflix