The comms from Amazon – at the turn of the year – about introducing its new ad tier were fascinating for two reasons:

#1) Amazon said that it was making the change because it would “allow us to continue investing in compelling content and keep increasing that investment over a long period of time”.

[Speech bubble over my head: surely, they have the funds to do this already?]

 

#2) “Starting February 5, Prime Video movies and TV shows will include limited advertisements… We aim to have meaningfully fewer ads than ad-supported TV channels and other streaming TV providers.”

[Ok. So some ads but not as many as its competitors. Do said competitors therefore need to match Amazon’s conditioning of viewer expectations (more ads = bad; fewer ads = good)?]

 

From a commercial perspective, what’s Amazon’s play here?

First, the opportunity is just too enticing: according to Morgan Stanley, the additional annual revenue through Prime Video ad sales and the $2.99 monthly surcharge that subscribers can pay to avoid ads will net Amazon around $5bn a year in the US alone. For Jeff Bezos (who I pictured in my mind as Blofeld stroking a white cat), it’s a win-win.

Second, Amazon is already the world’s third-largest digital ad seller, behind Alphabet and Meta’s platforms, with ad revenue surpassing $12 billion in Q3 2023 (up 26% from the period a year earlier) says the Wall Street Journal so, strategically, the fit is perfect.

There are challenges, however. The same WSJ analysis suggests that:

• Amazon is late to the ad-tier streaming market behind Disney, Netflix, WBD who enjoy more established relationships with the advertisers that still spend the bulk of their money on broadcast TV
• This is thus new territory for them and Amazon Prime Video, which isn’t perceived as a premium brand, has some work to do to woo big-spending brands
• Amazon will need to continue producing high-quality original content (sure) and make judicious acquisitions of other companies (e.g. MGM) and live, appointment-to-view, events
• And interestingly, it references a Bank of America forecast that roughly a third of subscribers are expected to opt for the ad-free version. 

For now, I’m choosing not to pay the extra and test how many ads I do end up seeing. If the UX is like YouTube, where one can skip ads or, indeed, the ads aren’t too obtrusive, I may remain seated on this side of the cost-benefit seesaw.