Amazon’s Prime Video on Monday made a major splash in the streaming scene, launching ads on the video service that counts over a hundred million subscribers. And while active viewership in the U.S. could be less than some competing services, analysts at MoffettNathanson see Amazon’s move as a “disruptive force” that the firm estimates could pull in over $2 billion in 2025.
Globally Amazon counts more than 200 million Prime subscriptions, which along with free 2-day shipping from the e-commerce giant and benefits like Amazon Music and others, includes access to its Prime Video streaming service.
In an Amazon presentation reviewed by the WSJ, the news publication reported ads on Prime Video are expected to reach an estimated 159 million global viewers each month. That’s a lot of eyeballs right out of the gate, particularly compared to other SVODs’ plans with ads. For example, there are 23 million global monthly active users on Netflix’s tier with ads, after launching nearly 15 months ago in early November 2022.
Of course, Amazon is taking a different approach than other streamers like Netflix and Disney+, which launched lower-cost options for plans that include ads alongside their existing and pricier ad-free tiers. Amazon, meanwhile, is automatically rolling out ads on Prime Video to all members – as disclosed when the tech giant first announced the January 29 launch date – where users in the U.S. will have to proactively opt-in to pay an additional $2.99 per month to get an ad-free experience.
Other markets will see a similar commercial-free option. Ads are first launching to users in the U.S., as well as U.K., Germany and Canada in early 2024. Later this year ads on Prime Video will debut in France, Italy, Spain, Mexico and Australia later in the year. Even when paying for a commercial free experience, Amazon said those users would still see ads where Prime Video already incorporates them, including on sports content such as the NFL’s Thursday Night Football and content from FAST service Freevee.
In announcing plans, Amazon promised Prime Video will have “meaningfully fewer ads than linear TV and other streaming TV providers.” According to the WSJ report based on Amazon’s presentation, Prime Video is expected to have an average ad load between two and three-and-a-half minutes, which the publication said would be significantly less than traditional TV and most streaming services. Some ads will play before content begins, while other commercials will air during programming.
‘Disruptive force’
In a January 26 note to investors ahead of the launch, analysts at MoffettNathanson pointed to the weight Amazon’s entry into the ad-supported video game brings for advertising and competition against other players, as the tech giant has “excess capacity, unrivaled first-party data advantages, and massive unduplicated reach,” the firm noted.
“While the AVOD/CTV market is in secular growth, we strongly believe that Amazon’s decision to add advertising to Prime Video will be a disruptive force to commoditized AVOD players, siloed CTV platforms and non-top 20 linear cable networks,” wrote analysts led by Michael Nathanson.
The firm wrote that its deep analysis into viewing trends on Prime Video indicate Amazon “could net over $2 billion in incremental video ad dollars in 2025.”
MoffettNathanson called out the company’s scale, advantages in top of funnel reach and bottom funnel targeting and performance marketing it said are distinct, and connection to Amazon’s massive e-commerce platform. With its upper and lower funnel capabilities, Nathanson said Prime Video with ads “could easily siphon dollars from most competitors in time as they scale their go to market efforts.”
In terms of subscription, the firm modeled 96 million U.S. Prime households, but believes only a portion of that are actively watching Prime Video. Based on analysis and comparisons with Netflix, MoffettNathanson’s report assumes Prime Video has an active U.S. subscriber base equivalent to Netflix’s 70 million.
When it comes to usage of the platform, the firm, using Nielsen and HarrisX data, noted Amazon’s time viewed per subscriber ranks third, behind Netflix and Hulu and ahead of Disney+ and Peacock – but pointed out that’s inclusive of its Freevee FAST, as well as rentals (or TVOD) transactions on Prime Video and viewing through other subscription partners via Prime Channels. MoffettNathanson’s report estimates so-called “Core Prime” viewership of the SVOD service is less than that of competing services, while also assuming Prime Video average engagement is relatively low. In its analysis, the firm noted fewer top or breakthrough titles on Prime Video and said the streaming service is likely not the main reason a large part of the base signs up for Prime Membership, which comes with several other perks.
“We therefore peg average Core Prime viewership at just 0.3 hours per subscriber per day in 2023, below those of peacock, Disney+, Hulu and Netflix,” wrote Nathanson.
Excluding non-Core Prime viewing (meaning Prime Channels, Freevee, rentals, and Thursday Night Football), the analysts wrote, “All in all, these estimates would mean that over half of all Amazon’s viewership will be unaffected when the company flips on advertisements next week.”
That’s not to say there isn’t a massive advertising opportunity and disruptive move at play.
In terms of just how large the advertising opportunity is in the U.S., the MoffettNathanson report projects Amazon will have 6.4 billion “ad-eligible” hours in 2024 (and includes assumptions of 70 million U.S. subscribers, averaging 0.3 hours spent per day, that roughly 15% of U.S. subscribers opt to pay for the commercial-free option, and ad loads similar to Netflix at about four minutes per hour), potentially selling 51.5 billion spots in 2024.
Specifically, in its calculations assuming a CPM of $32.50 and sell-out rate of 60% for 2024, MoffettNathanson estimates the intro of advertising on Amazon Prime Video could generate incremental U.S. ad revenues of $1 billion in 2024 – and climb to $2.8 billion in 2027 (excluding existing video advertising including Freevee, Twitch and TNF). When combined with the firm’s estimate for $400 million in incremental subscription revenue from those who would opt for the ad-free version of Prime Video, in total it estimates adding commercials to “Core Prime” will generate $1.4 billion for Amazon in the U.S. this year, increasing to $2.1 billion in 2025 and reaching $3.2 billion in 2027.
Internationally, the firm estimates Amazon’s Prime Video ad push could total $400 million in revenue for 2024 and grow to $1.3 billion in international revenue by the end of 2027.
As for where the ad dollars are flowing from, MoffettNathanson analysts believe it will be a roughly 50/50 split between largely national cable networks on linear TV and other AVOD players in the U.S. market.
“This would also mean that while the overall CTV space would grow by an additional $870 million in 2025, all non-Amazon platforms stand to collectively lose $870 million from Core Prime Video advertising – about 11% of our prior 2025 AVOD forecast,” wrote the analysts.