Amazon Prime Video Already Has a Leg Up on Netflix and Disney+ in the Ad Game

Tony Maglio
·5 min read

Amazon Prime Video will enter the ad space in early 2024. Except, in some ways, it has been there for a while now. And because of that, it already has a leg up on Disney — and definitely on Netflix.

FAST service Amazon Freevee has been selling video ads for years already, even before the former IMDb TV (launched January 2019) rebranded in April 2022. And Prime Video already had commercials during its “Thursday Night Football” games and awards shows; it also runs marketing ads for (Prime Video) series ahead of other (Prime Video) series and movies.

More from IndieWire

Amazon the company has been in advertising for considerably longer. (Amazon Ads has been around since the mid-2000s.) That branch of the business has been taking off as of late.

The Amazon advertising services group recorded $10.7 billion in ad sales from April to June 2023, up 22 percent from the same quarter in 2022. Ad sales represented 8 percent of the company’s total Q2 revenue — $134.4 billion, up 11 percent year to year — and it grew at double the overall rate. (Amazon’s advertising services sells sponsored ads, display ads, and video advertising to sellers, vendors, publishers, authors, and others.)

As part of the same earnings report, Amazon CEO Andy Jassy said the company is “continuing to see strong demand for our advertising services as the team keeps innovating for brands, including the ramp up for ‘Thursday Night Football’ with the ability for advertisers to tailor their spots by audience and create interactive experiences for consumers.”

Also during the quarter, Amazon became Pinterest’s first partner for third-party ads, announced new FAST service Fire TV Channels, which specializes in short-form content in the news, sports, music videos, entertainment, food and cooking, video games, and travel categories, and AI to help advertisers reach “previously unaddressable audiences,” in the company’s words.

Jassy then teased: “We remain excited about what lies ahead for customers and the company.” The Prime Video-with-ads announcement came a month and a half later.

There is still more reason for Jassy’s current excitement. The largest single quarter of Amazon’s recent ad-sales growth (on a percentage basis) came in Q3 last year (+30%). The third quarter for this year ends on Saturday.

No wonder Amazon Prime Video isn’t having you opt in to its ads; it’s instead making you opt out (and pay an extra $2.99 to remain commercial-free).

Never Have I Ever. (L to R) Michael Cimino as Ethan, Maitreyi Ramakrishnan as Devi in episode 404 of Never Have I Ever. Cr. Courtesy Of Netflix © 2023
Michael Cimino as Ethan, Maitreyi Ramakrishnan as Devi in episode 404 of “Never Have I Ever”Courtesy Of Netflix

Perhaps Netflix should have done the same. After all, it is no secret that Netflix with Ads generates more ARM (average revenue/member in Netflix parlance, usually referred to as ARPU — average revenue per user) than the pricier ad-free Netflix.

Netflix posted $8.2 billion in total revenue last quarter; the company does not currently break out its ad-sales revenue. Netflix’s ads are still being sold through a partnership with Microsoft, which means the revenue is split two ways. (Terms of the deal are not disclosed.)

Unlike Amazon’s overall ad haul, Netflix’s advertising revenue wouldn’t be of particular materiality. Netflix with Ads is less than a year old, and it got off to a slow start. As of May, the company said it had “signed up” about 5 million subscribers to its ad-supported tier. In July, research firm Antenna estimated that just over 3 percent of Netflix’s U.S. subscribers are on its ad-supported plan. In August, Ad Week reported Netflix had 10 million monthly active users (not necessarily subscribers) on its advertising tier.

Netflix executives wrote in the company’s July 19 letter to shareholders: “We’re confident that over time we can develop advertising into a multi-billion-dollar incremental revenue stream.”

Media analysts agree, though “over time” is the key phrase there, and exactly how many billions remains to be seen (and is regularly debated among the Wall Street types).

Disney has been in the advertising game for decades via ABC (and later, cable) so there’s no split happening here. While Disney+ may be new to ads (it launched December 8 in the U.S.), Disney’s direct-to-consumer business is not. Hulu, which Disney has been a part of since the beginning and the controlling partner of since 2019, was born with ad breaks. Disney should own Hulu 100 percent before the end of the year.

Still, Disney’s advertising prowess pales in comparison to Amazon’s — because, well, everyone’s does. (Disney’s total revenue for the June quarter was $22.3 billion; it does not break out advertising sales in financial reports.)

We’re not the only ones to have this thought. Our friend Colin Dixon over at Nscreenmedia sees the same disparity between Amazon and the other streaming heavyweights. In our conversation, Dixon could not overemphasize enough the humongous advantage Amazon Prime Video advertising services has from what he called your “massive amount” of Amazon.com purchase history. (And ours too.)

With that e-retail data in hand, no one in the world can target ads quite like Amazon the overall company can. What’s better — and what advertisers “absolutely crave,” in Colin’s words — is Amazon’s ability to demonstrate that one’s exposure to a Prime Video ad led directly to a purchase.

The future of video advertising is now. Well, technically it’s “early 2024.”

Best of IndieWire

Sign up for Indiewire's Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.

Click here to read the full article.