Amazon is already disrupting the streaming advertising market – here’s how

Amazon (AMZN) entered the ad-supported streaming space in January by setting all its Prime Video subscriptions to ads by default. Just six months later, the tech giant’s impact is already being felt.

Prime Video subscriptions now automatically default to the ad-supported tier at the current monthly rates of $14.99 for Prime Delivery members and $8.99 for non-Prime members – or those who only subscribe to the independent video service. Subscribers who want the ad-free version will now see their monthly bill increase by $3 per month.

Amazon’s entry builds on the presence of Netflix (NFLX) and Disney (DIS), which introduced their respective advertising tiers in late 2022. That means an already accelerated expansion of ad-supported options for consumers – along with potential ad buyers.

“There’s no question this has created a supply glut in the marketplace,” Rita Ferro, Disney’s president of Global Advertising, told Yahoo Finance earlier this week at Cannes Lions, an annual event for the global advertising and communications industry .

In short, companies like Disney have to work much harder to attract advertisers to their platforms.

MoffettNathanson estimated that Prime Video could add more than 50 billion impressions to the connected TV (CTV) market this year, “an amount that will likely dwarf many of the smaller players in the space” as a larger inventory simultaneously lowers the price for advertisements.

“Amazon knows how to gain market share and they know how to use price to gain market share,” said Mark Douglas, CEO of MNTN, an ad tech company that specializes in the CTV space. “That’s one of the big things this week (in Cannes) – Amazon is being quite aggressive when it comes to lowering prices.”

Ad buyers have paid Amazon a reported cost per thousand, or CPM rate, of between $30 and $35. The low price has forced competitors to follow suit. According to the Wall Street Journal, Netflix has lowered its CPM rate from a previous range of $39 to $45 last summer to around $29 to $35 currently.

“Why they can do that and the rest of the industry believes that one problem is that Amazon has a large search advertising business and can move those advertisers over to Prime,” Douglas said. “They can do a much better job of monetizing the content and lowering the price. That’s the key dynamic at work right now.”

‘It just raises the stakes’

Amazon has one of the broadest audiences of all streaming platforms thanks to its Prime delivery service and ability to keep consumers within its ecosystem. That has helped the company easily secure customer data and increase its targeting capabilities, both attractive to advertisers.

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“It just raises the stakes,” Macquarie analyst Tim Nollen previously told Yahoo Finance when asked about the Amazon ads rollout. “Everyone is now dealing with a different competitor and a very large supply of inventory that they are going to compete for.”

But there may be plenty of inventory, especially as more consumers opt for ad-supported streaming options.

According to subscription analytics platform Antenna, which published its second-quarter State of Subscriptions report on June 13, more and more users are opting for cheaper advertising plans, with 38% of total accounts now opting for advertising tiers.

These trends continue to drive ad buyers’ shift from linear to streaming, with MoffettNathanson predicting total advertising video on demand will grow 33% this year, compared to a 17% increase in 2023.

“Platforms with the most inventory, the least content to have, and the worst targeting capabilities are at the greatest risk,” the company said.

But Douglas believes competitiveness will force the rest of the industry to adapt to Amazon’s moves.

“There’s a transformation happening,” the executive said, explaining that Amazon and other Big Tech companies are focusing on capturing overall market share rather than securing the highest price for a 30-second ad, the former standard for traditional media buying.

“The rest of the industry is not set up for that. That’s the problem,” he said. “Still, I don’t think it’s a big long-term threat where Amazon is going to eat everyone’s lunch. In the short term, they’re accelerating trends that had to happen anyway.”

But, he warned, “it will be necessary to think a little more like a technology company and a little less like a media company.”

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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