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Prime Video's Strategic Move: Ad-Supported Subscription

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Source: Glenn Carstens-Peters / Unsplash

In a bold move set to shake up the streaming landscape, Amazon has announced the introduction of ads on its Prime Video platform. This significant development is poised to have far-reaching effects on the media sector, particularly in terms of ad revenue, market share, and ad pricing compared to its competitors. With this strategic shift, Amazon is expected to capture a sizable portion of the burgeoning streaming ad market, potentially altering the dynamics of the industry.

The introduction of an ad-supported tier within Prime Video subscriptions is a pivotal aspect of Amazon’s strategy. This tier will be offered at a slightly lower cost, with a $3 per month increase for an ad-free version. By providing this choice, Amazon aims to cater to a wider audience, including those who are price-sensitive and willing to accept ads in exchange for a reduced subscription fee. The move aligns with the company’s focus on expanding its customer base and diversifying its revenue streams within the video streaming segment.

According to industry analysts, Amazon’s foray into ad-supported streaming is expected to yield substantial returns. With approximately 96 million US Prime households, Amazon is well-positioned to leverage its vast user base and content library to generate significant video ad revenue. It is estimated that by 2024, the ad revenue from Prime Video could potentially reach $1.3 billion, marking a substantial addition to Amazon’s overall advertising income.

Moreover, the timing of Amazon’s entry into the ad-supported streaming market is noteworthy. The US connected TV and ad-supported market is projected to grow significantly, with forecasts indicating a potential value of $16 billion by 2025. Amazon’s strategic move positions the company to capitalize on this upward trend, potentially reshaping the competitive landscape and exerting pressure on existing players to recalibrate their ad strategies and pricing models.

In seeking to establish its presence in the ad-supported streaming space, Amazon is poised to disrupt prevailing industry norms, including CPM rates. Notably, several streaming players, such as Netflix and Disney, have historically sought CPM rates ranging from $50 to $60 for their ad tiers. In contrast, Amazon’s anticipated CPM rate of $35 signals its intent to offer competitive pricing while leveraging its expansive reach and diverse user demographics to attract advertisers.

The introduction of an ad-supported tier within Prime Video is set to unfold in phases, with the initial rollout planned for the US market. Amazon’s strategic approach involves gradually expanding the ad-supported tier to other countries later in the year. Importantly, the company aims to distinguish its ad experience by offering relatively fewer ads compared to traditional linear TV and other streaming providers. This positioning underscores Amazon’s commitment to delivering a compelling value proposition to both subscribers and advertisers, thereby setting the stage for a transformative shift in the streaming ad ecosystem.

The implications of Amazon’s entry into the ad-supported streaming space have not gone unnoticed by industry experts. Michael Morton, lead analyst at MoffettNathanson, succinctly captured the prevailing sentiment, describing Amazon’s move as “A 500 lb. gorilla enters the room.” This analogy underscores the seismic impact that Amazon’s disruptive entry is expected to have on the competitive dynamics of the streaming ad market. Furthermore, Tim Nollen, an analyst at Macquarie, highlighted Amazon’s unparalleled reach, stating, “Amazon has one of the broadest audience reaches of all the streaming services.” This observation underscores the strategic advantage that Amazon possesses as it ventures into the ad-supported streaming domain.

In conclusion, Amazon’s introduction of an ad-supported tier within Prime Video represents a watershed moment in the streaming ad market. The company’s strategic foray is poised to reshape industry dynamics, with implications for ad revenue, market share, and ad pricing. As Amazon navigates this new terrain, the reverberations of its disruptive move are expected to reverberate across the media sector, potentially leading to a shift in ad buyer preferences from linear to streaming platforms. As the ad-supported tier gains traction, Amazon’s impact on the streaming ad market is likely to be profound, underscoring the company’s pivotal role in driving transformative change within the evolving landscape of digital media consumption.

The information provided is for general informational purposes only. All investment decisions should be based on your own due diligence and in consultation with a financial advisor.

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