Amazon Prime to Incorporate Ads Early Next Year

Amazon's streaming service, included with the coveted Prime Shipping subscription, will introduce ads into its programming starting in the U.S. in early 2024, expanding to other countries later in the year. U.S. customers who want an ad-free experience have to shell out an additional $2.99/month, though live events and sports will retain their ads.

The move mirrors strategies from Netflix, Hulu, and Disney+—all offering ad-supported tiers because...they work. When I was strictly consulting, before running the best SEO content marketing agency there is for streaming video tech companies, I would advocate media execs open up all business models and let the consumer choose how they're going to pay (so long as rights weren't an issue) - either with tangible dollars, proverbial eyeballs, or a mix of both. After all, the OTT video thing was all about consuming choice, so let's embrace it.

The Take

Plus, ad-supported plans typically make more money as the model scales viewership with revenue like subscription models don't. Here's the content from presentations I would give explaining why:

1. Incremental Revenue with Increased Viewing: With an ad-supported model, the more content viewers watch, the more ads they are exposed to, and the more ad revenue a streaming service can generate.

2. Attracting Advertisers with Volume: High viewership numbers can be appealing to advertisers. As a streaming service demonstrates increased hours of content watched, it can attract more (and sometimes bigger) advertisers willing to pay premium rates to access that engaged audience. This is also why fluff metrics such as MAU are being touted in the FAST sector. Going to point #1 above, time or "total viewing time" is really what matters.

3. Data and Targeted Advertising: More viewing provides a streaming service (not its content partners) with more user preferences and behavioral data. This data can be invaluable in offering targeted advertising, which can be sold at a premium. The more a user watches, the more refined the data becomes, allowing for even more targeted and, thus, more valuable ad placements. Bada bing, bada boom.

4. User Acquisition and Retention: Offering content for "free" (i.e., supported by ads) can attract users who are hesitant about committing to a monthly subscription fee. Once they're on the platform, the variety and quality of content can encourage prolonged and repeated viewing, not to mention product marketing (i.e., push notifications on the devices we're always holding), leading to increased ad revenue. Moreover, users might be more tolerant of ads if they aren't paying a subscription fee. But let's make this clear: nobody enjoys ads. Please be mindful of this when it comes to the ad experience.

5. Potential for Hybrid Models: Ad-supported business models can be combined with subscription models (SVOD) to create hybrid monetization strategies. For example, a user might subscribe to an ad-free experience but opt for the ad-supported version during financially tight months. This flexibility can retain users who might otherwise churn out completely.

Contrast this with a subscription model where users pay a fixed monthly fee. Whether they watch one hour or 100 hours of content, their financial contribution to the platform remains the same. While this model provides consistent and predictable revenue, it doesn't directly capitalize on increased engagement and viewership like the ad-supported model. Case in point, Netflix is making more revenue per user from its ad-supported plan than its ad-free one.

Per Digital TV Research's latest forecasts, ad-supported revenue is expected to rise from $39 billion in 2023 to $69 billion by 2029.

So, back to Amazon's ad announcement, Prime Video's integration with FreeVee could lead to confusion. It remains to be seen whether paying the additional fee will remove ads from all content, including FreeVee shows like Jury Duty or licensed fare such as Perfect Strangers, a guilty pleasure of mine.

New research from Hub Entertainment suggests that viewers don't actually hate TV ads, especially if it means accessing content at a lower cost. According to their data, 97% of people watch ad-supported content. Furthermore, many viewers lean towards services that offer them the flexibility of choosing between ad-supported and ad-free options. No surprises there.

However, there's a fine line. Just because viewers opt for ad-included tiers to save money doesn't mean they necessarily enjoy the ad experience. Opting for cheaper, ad-supported content could be a financial decision rather than an indication of contentment with ads.

In essence, saving money and enjoying ads are two different things. And to assume that choosing a cheaper option equates to endorsing ads?

In the words of Balki Bartokomous, "Don't be ridiculous."

Source: The Streaming Wars Newsletter