The e-commerce giant’s entrance into the streaming ad wars is its latest move to grow its $38 billion ads business.
With its scale, data, and broad ad offerings, Amazon enables an attractive play for advertisers that struggle to reach streaming viewers who are now fragmented across multiple services.
It could appeal to advertisers eager for alternatives to traditional linear-TV players such as Comcast and Warner Bros. Discovery, as well as YouTube, with its big connected-TV ad business. Amazon’s move also could blunt Netflix’s nascent effort to build an ads business.
Wall Street thinks the ad offering will drive upward of $5 billion in revenue for Amazon. The revenue would largely come in the form of advertising; Amazon is also set to make money from Prime Video viewers who pay $3 a month to opt out of seeing ads.
The e-commerce giant will offer a big audience from the get-go because, unlike Netflix and Disney+, it’s making ads the default experience. Morgan Stanley estimated in a January 19 note that ads would hit 70 million viewers.
Amazon accounts for three-fourths of all US retail-media dollars, according to Insider Intelligence — generating rich info that can inform ad buys, Morgan Stanley wrote in the note.
In terms of price, Amazon has sought a $30 to $35 CPM, or cost per 1,000 views, which has gotten some pushback from advertisers but is in the ballpark of streaming rivals.
Amazon can also offer advertisers other video-ad products, including the ad-supported service Freevee. And it’s been gaining advertisers’ confidence by selling ads on the NFL’s “Thursday Night Football.” It’s been hiring veteran TV execs to make inroads into the television ad marketplace as well.
The addition of ads on Amazon Prime, along with Netflix, could appeal to smaller advertisers that typically can’t afford big traditional TV buys, New Street Research wrote in a note.
Amazon has been ratcheting up incentives to get advertisers on board, like up to 30% more ad impressions to advertisers spending $250,000 and up.
An Amazon spokesperson said the company had a “strong response from agencies” wanting their clients to be first on Prime Video. “We value our ad customers and, as is common practice, occasionally thank our most engaged clients with additional opportunities,” the representative added.
Jon Morgenstern, the executive vice president and head of investment at the ad holding company VaynerX, said he’d like to see Amazon’s rates come down more, to the high teens. On the other hand, he added, advertisers are willing to pay more if Amazon can show that its ads result in sales.
“If they can nail the conversion tracking, it doesn’t matter if you can see the business results,” he said.
Amazon’s success is far from guaranteed
While Prime Video looks set to build a robust ads business, it accounts for just 3.3% of US TV-watching time, close to Hulu’s 2.6% and behind Netflix’s 7.7%, per Nielsen. (That figure includes Freevee and time watching other streaming services through Amazon Channels.)
It’ll have to win over nonendemic advertisers (those that don’t sell products on Amazon), an area where Amazon is still making inroads.
And the launch comes as most TV ad dollars have already been spoken for. Even when the big TV up-front selling period gears up later in the spring, advertisers will have to weigh the leverage they’d lose by shifting dollars from long-standing partners such as Disney and Comcast.
Amazon doesn’t consistently churn out the hits that Netflix does, a point Netflix was happy to underscore on its earnings call last week. In addition to making ads the default viewing experience, Netflix dominates streaming’s most watched list.
“We’ve got the most engaged audience, watching the most culture-defining films, series, and live events,” Netflix co-CEO Greg Peters said on the call. “That is an important place for brands to be, and that’s what differentiates us from our competitors.”
Dave Campanelli, the executive vice president and chief investment officer at the media agency Horizon, said clients would be advertising as part of the launch and there’s strong interest in the offering, given Amazon’s big reach, other assets, and tech capabilities. But the bigger test will be later in the year during the upfront.
“There are plenty of options to buy CTV, and there’s not oodles of money coming in,” he said.
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