Amazon Could Add At Least $3 Billion in Revenue with Ad-Supported Prime Video Launch
As the number of people cutting the cord for the first time continues to dwindle to a slow trickle, streaming services have shifted their focus to find strategies to increase their revenue on the backs of their current customers, instead of focusing solely on finding new ones. More often than not over the past year, that has meant that previously premium platforms have introduced ad-supported streaming options as they allow companies to profit from both the subscription and advertising fees.
Last month, Amazon became the latest company to announce the introduction of an ad-supported tier which will officially launch in 2024. At launch, Amazon has promised that Prime Video will feature “meaningfully fewer” commercials than broadcast channels, but has yet to confirm the number of ads that will appear in each hour of programming.
Despite not knowing the full details of Amazon’s plan, some analysts believe that the move will bring in at least $3 billion in additional revenue for the company, with estimates ranging as high as $6 billion should Prime Video get aggressive in the number of ads it shows. UBS US internet analyst Lloyd Walmsley told Yahoo! Finance should bring in the low end of the estimate if it sticks to the current industry average of three minutes of ads per hour, but could double that if it goes higher.
“We think conservatively it could add $3 billion [to Amazon’s revenue] if they’re just showing three minutes of ads every hour under the advertising community’s current go-to-market,” he said. “But if they actually increase those ads closer to six minutes an hour, then it could obviously double that. You’re talking about $6 billion of potential revenue coming in through ads, and, by comparison, traditional linear TV is showing something like 16 minutes per hour of ads.”
One of the major differences between how Amazon plans to roll out its ad-supported offering versus how nearly every one of its streaming competitors has done it is that Prime Video will make its ad-supported plan the default and require customers who want to continue to enjoy an ad-free experience to opt-in and pay an extra $2.99 per month. While from a customer financial standpoint, this isn’t all that different from what Disney+ did when it launched its ad-supported Basic tier late last year, but in that case, the default was to keep existing subscribers on the ad-free option and give customers the ability to downsize to the cheaper ad-supported tier.
The reason that Amazon is opting to push people to ad-supported subscriptions is that even though it is cheaper than the ad-free option, the increased revenue generated by the commercials makes the less expensive plans more profitable. It is a high-risk, high-reward stretgy, but given that revenue growth from adding streaming subscribers has plateaued at best, this seems like a solid way to increase revenue without having to technically raise the price of the service on budget-conscious consumers.
Amazon Prime Video
Amazon Prime Video is a subscription video streaming service that includes on-demand access to 10,000+ movies, TV shows, and Prime Originals like “The Lord of the Rings: The Rings of Power,” “Jack Ryan,” “The Marvelous Mrs. Maisel,” “The Boys,” and more. Subscribers can also add third-party services like Max, Showtime, STARZ, and dozens more with Amazon Prime Video Channels. Prime Video also offers exclusive live access to NFL Thursday Night Football.