The introduction of advertising on Amazon Prime Video could generate up to $5 billion in additional revenues, according to Bank of America analysis published today.
The streaming service will start to show ads from 29th January in the US, and 5th February in the UK and Germany. Alternatively, Amazon Prime subscribers can move to the ad-free tier for an additional £2.99 per month.
According to Bank of America analyst Justin Post, Amazon will sell $3 billion worth of video ads this year. The company could also generate an extra $1.8 billion from subscribers switching to the ad-free plan. This estimate is based on 70 percent of Prime subscribers sticking with the ad-supported version.
The Bank of America projection is higher than an earlier forecast from UBS. In October the investment bank “conservatively” estimated the move could add $3 billion to Amazon’s revenue – notably the same sum as the latest prediction in terms of ad sales.
UBS analyst Lloyd Walmsley said the prediction was based on an estimated three minutes of ads per hour. He noted that Amazon could double its revenues by making the ad load closer to six minutes per hour.
Welcome to Prime time
The precise volume of ads on Prime Video content is still unknown, but Amazon has promised “meaningly fewer” than linear TV and other AVOD services. On their ad-supported tiers, Netflix and Disney+ show an average four minutes of ads per hour, making three minutes a reasonable assumption based on Amazon’s announcement.
Meanwhile the Bank of America suggested that 70 percent of Amazon subscribers will use the ad tier. This estimate is, broadly speaking, the inverse of Netflix, which said in October that 30 percent of new subscribers choose the ad-supported plan. But users signing up to Netflix are all doing so because they want to watch video content, so most of them are happy to pay more to do so without ads.
Amazon Prime subscribers on the other hand are not necessarily there for the streaming service. Last year, a PYMNTS survey found that 64 percent of Prime members consider free shipping the most important feature, versus just 12 percent choosing Prime Video. Subscribers would therefore be less likely to pay more to remove ads on the streaming service.
Amazon has around 13 million Prime members in the UK and 150 million in the US, and according to Kantar, 68 percent of subscribers use Prime Video. This makes the AVOD service an enticing proposition for advertisers – not least due to the targeting potential of Amazon’s first-party shopping data.
And while its membership growth is slowing, Amazon’s advertising business is gathering steam. Advertising generated $12.1 billion in the latest quarter, bringing in 8.5 percent of Amazon’s total revenue, making it the company’s fastest-growing revenue stream.
In December 2022, even before the Prime Video announcement, Axios identified Amazon as the biggest threat to Google and Meta’s advertising duopoly. The research forecast Amazon to take 12.7 percent of digital ad dollars in 2024, quickly gaining on Meta’s 17.9 percent.
