Amazon’s Prime Video is undercutting rival Netflix on advertising pricing, as it battles for marketers’ attention in an increasingly crowded field of ad-funded streaming services.
Amazon introduced advertising to its Prime Video platform five months ago and is going through its first “up front” — when television companies present their plans to advertisers to attract money over the next year.
The Seattle-based company has joined a highly competitive market for ad-supported streaming services. Most rival platforms — including Netflix, Max, Paramount+ and Disney+ — have brought in an ad-supported tier at a lower price than subscriptions that carry no ads.
Analysts expect Apple to bring ads to its streaming TV+ service soon too. More conventional TV companies are also offering ad-supported streaming services, while Fox’s Tubi only offers shows backed by ads.
The “bundles” that advertisers buy — in different formats and with various services attached — can make direct comparisons difficult. But multiple executives at rival services, as well as advertising bosses, said Amazon was pricing its spots more cheaply than Netflix, although at a higher rate than others such as Disney.
The arrival of Amazon had already forced rivals to reduce their own pricing, according to advertising sources. One rival executive noted 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.
Amazon’s arrival has particularly worried executives at rival streamers because of its existing strength in retail that analysts expect will fuel interest in its Prime ad slots.
The ecommerce giant automatically converted all its more than 200mn total global subscribers to the ad tier — unless they actively chose to pay more for the premium ad-free service. That meant Amazon immediately had a huge audience with which to lure advertisers.
It was a “pretty dramatic and contrarian move” and had resulted in a “sudden accumulation of an advertising audience, which is pretty powerful”, said Jonathan Carson, chief executive of industry data provider Antenna.
The company has a vast trove of shopper data and the ability to direct viewers to its online stores.
One US TV executive said competition had noticeably increased since Amazon’s entry, adding that Prime Video ads had “made a big impact”.
Amazon has rapidly grown its multibillion-dollar advertising business — driven by ads on its online stores — which generated $11.8bn in sales in the first quarter of 2024, up from $9.5bn in the year-ago period.
Analysts at JPMorgan said in June that the division was Amazon’s “fastest-increasing revenue stream and one of its highest-margin businesses”.
The arrival of Prime Video ads was likely to propel that growth, analysts expect. Citi estimated in January that Prime Video adverts could generate more than $5bn in “high-margin advertising revenue” as it builds up, albeit a figure still substantially below the $19bn Amazon invested in video and music content in 2023.
Baird analysts in May said they had seen “healthy demand from both traditional linear and streaming video advertisers” for the new Prime Video ad slots. This year was “the soft rollout of Prime streaming ads” with a “bigger step-up” expected in 2025, Baird said.
Chief executive Andy Jassy has said he believes that Prime Video can be “a large and profitable business on its own”.
Advertising executives said Amazon offered brands the chance to target specific audiences thanks to the data it has from its retail platform.
Prime Video adverts were “the perfect closed loop attribution that we’ve been waiting for on linear TV” because “Amazon knows who you are” and what a viewer has bought on the Amazon.com website, said Citi analyst Ron Josey. “It’s a very large opportunity for them.”
In May, Amazon announced “shoppable” ad formats for Prime Video to allow viewers to add products to their Amazon shopping cart during ad breaks using their smart TV remotes.
One ad executive said that every brand was interested in “higher efficiency and more targeting” — both of which were being offered by Amazon.
Hasbro adopted Prime Video advertising for a six-week test run in the UK, using Amazon first-party data to target parents. It found that two-thirds of Peppa Pig purchases during that period were new to the brand, adding that sales for those toy products on Amazon had increased 18 per cent, year-on-year.
“There is a sales pitch which has a buy one buy all, but when you get into it it’s not quite there yet,” said another ad exec, pointing to the range of retail and video options as well as Twitch, the gaming platform. “But they will get there.”
According to Antenna’s Carson, the number of Prime subscribers who paid to opt out of ads was pretty substantial at first but quickly “trailed off”. At the end of May, less than a tenth had paid more for no advertising, they found.
Other streamers are also having success on their ad-supported tiers as cost-conscious consumers look at how many subscriptions they can maintain. Netflix has said that it has 40mn monthly active users globally on its ad tier, attracting between 40-50 per cent of new sign-ups.
Ad plans had gone from 28 per cent to 38 per cent of the premium streaming market in the past two years, and made up more than half of gross additions for the first time in the last quarter of 2023, and first of 2024, according to Antenna.
The focus on bolstering Prime Video’s financials marked a change from how Amazon had originally conceived of the streaming service, former company insiders said, seen at one time as a way to get consumers to sign up for the Prime subscription service.
Amazon’s Prime Video and Studios divisions were among those hit by lay-offs this year as the company sought to cut costs across the board and after big spending on blockbuster shows such as the Lord of the Rings series.
But analysts and ad executives say there is more than enough content on Prime — new and old — to ensure that Amazon can take a dominant position in the market for advertising for streamers.
“It’s their playbook. Amazon has always been like a company that builds massive market share, then they monetise it,” said one ad executive. “You see they did that with ecommerce. They did that with cloud computing, and they’re now doing it with their ads business.”
