Amazon's Prime Video is shaking up the streaming landscape by offering advertisers lower prices compared to its competitor Netflix, as the battle for attention intensifies in the ad-funded streaming market.
Just five months after introducing advertising to its platform, Amazon is navigating its first "upfront" season â a period where television companies present their advertising plans and rates to attract funding for the upcoming year. The Seattle-based tech giant joins a fiercely competitive arena, where rivals like Netflix, Max (formerly HBO Max), Paramount+ and Disney+ have already launched ad-supported tiers at a lower cost than their ad-free subscription counterparts.
Analysts anticipate Apple to follow suit by introducing ads to its streaming service, Apple TV+. Even traditional television companies are expanding into the ad-supported streaming market, with Fox's Tubi already exclusively offering ad-backed programming.
While the "bundles" offered to advertisers, with various services and formats included, make direct price comparisons challenging, sources within rival services and advertising agencies report that Amazon is pricing its advertising spots lower than Netflix, albeit at a higher rate than competitors like Disney.
The arrival of Amazon has already prompted competitors to lower their own advertising prices. One rival executive pointed to Amazon's "vast supply of inventory," adding, "There is downward pressure. They knew what they were doing in terms of flipping everybody over into the tier."
Amazon and Netflix declined to comment on the matter.
Amazon's entry into the ad-supported streaming market has particularly raised concerns for executives at rival services, fuelled by analysts' expectations that Amazon's retail strength will drive interest in its Prime ad slots.
The e-commerce giant automatically opted all its over 200 million global subscribers into the ad tier, unless they proactively chose to pay more for the premium, ad-free service. This immediately granted Amazon a sizable audience to attract advertisers.
Jonathan Carson, CEO of industry data provider Antenna, described the move as "a pretty dramatic and contrarian move" that resulted in a "sudden accumulation of an advertising audience, which is pretty powerful."
Amazon possesses a vast trove of customer data and the ability to direct viewers to its online stores, creating a powerful proposition for advertisers. One US television executive acknowledged the noticeable increase in competition since Amazon's entry, highlighting the significant impact of Prime Video ads.
Amazon's advertising business, driven by ads on its online stores, has been expanding rapidly, generating £9.5 billion in revenue in the first quarter of 2024, up from £7.7 billion in the same period last year.
JPMorgan analysts, in June, described Amazon's advertising division as "the fastest-increasing revenue stream and one of its highest-margin businesses."
Analysts predict that the introduction of Prime Video ads will further propel this growth. Citi estimated in January that Prime Video adverts could generate over £4 billion in "high-margin advertising revenue" as the service expands. Although, this figure remains significantly lower than the £16 billion Amazon invested in video and music content in 2023.
Baird analysts, in May, confirmed observing "healthy demand from both traditional linear and streaming video advertisers" for the new Prime Video ad slots. Baird anticipates a "bigger step-up" in 2025, following a "soft rollout" of Prime streaming ads this year.
Amazon CEO Andy Jassy has declared his belief that Prime Video has the potential to become "a large and profitable business on its own."
Advertising executives highlighted the advantage Amazon offers brands in targeting specific audiences, leveraging its data from the retail platform.
Citi analyst Ron Josey described Prime Video ads as "the perfect closed loop attribution that weâve been waiting for on linear TV" due to Amazon's knowledge of viewers and their purchase history on Amazon.com. "Itâs a very large opportunity for them," Josey added.
In May, Amazon introduced "shoppable" ad formats for Prime Video, enabling viewers to add products to their Amazon shopping cart during ad breaks using their smart TV remotes.
One ad executive expressed a common sentiment, stating that every brand seeks "higher efficiency and more targeting," both of which Amazon delivers.
Hasbro conducted a six-week test run of Prime Video advertising in the UK, targeting parents using Amazon's first-party data. The company found that two-thirds of Peppa Pig purchases during that period were from new customers, and sales of those toys on Amazon had increased by 18% year-on-year.
However, another ad executive cautioned that while Amazon offers a compelling sales pitch with its "buy one buy all" approach, it hasn't fully realised its potential yet, considering the wide range of retail and video options, including Twitch, the gaming platform. "But they will get there," the executive concluded.
According to Antenna's Carson, while a substantial number of Prime subscribers initially opted to pay for the ad-free tier, the numbers quickly declined. By the end of May, less than a tenth of subscribers were paying extra for an ad-free experience.
The success of ad-supported tiers extends beyond Amazon, as cost-conscious consumers seek to manage their subscription budgets. Netflix reported that its ad tier has 40 million monthly active users globally, attracting 40-50% of new sign-ups.
Antenna data reveals a significant shift in the premium streaming market, with ad plans increasing from 28% to 38% in the past two years. In the last quarter of 2023 and the first quarter of 2024, ad-supported plans accounted for over half of new subscriptions for the first time.
This focus on bolstering Prime Video's financials represents a departure from Amazon's initial vision for the streaming service, which was viewed as a means to attract consumers to the Prime subscription service. Former company insiders shared this insight.
Amazon's Prime Video and Studios divisions were among those affected by layoffs this year, as the company sought to cut costs across the board, following significant investments in blockbuster shows like the *Lord of the Rings
series.
Despite these cost-cutting measures, analysts and ad executives believe that Prime Video possesses a wealth of content, both new and old, to secure a dominant position in the streaming advertising market.
One ad executive summarised Amazon's strategy succinctly: "Itâs their playbook. Amazon has always been like a company that builds massive market share, then they monetise it. You see they did that with ecommerce. They did that with cloud computing, and theyâre now doing it with their ads business."