In a significant change to its platform, Amazon has revealed that it will be introducing TV commercials to its Prime Video service. This decision comes as a break from Amazon’s past approach, where it had maintained an ad-free experience for its viewers. But Amazon is not the first to do this; a cavalcade of streaming services like Disney+, Netflix, and Warner Bros. Discovery’s Max have already integrated ad-supported tiers. This development could mark a tectonic shift in the streaming landscape, resembling the ad-supported traditional television model. But what does this mean for consumers and the industry at large?
The Landscape of Ad-Integration in Streaming Services
“The TV industry has really never been able to truly control itself when it comes to aggressive monetization,” observes Tim Hanlon, CEO of Vertere Group, a media consultancy firm. This unabated pursuit of revenue has led to a transformation in the streaming sector, moving it closer to the traditional TV industry’s business model. Platforms like Netflix were initially resistant to including ads but have since changed course to include ad-supported tiers.
Amazon plans to be somewhat more moderate in its approach. The company aims to include around four minutes of ads per hour, compared to the higher volumes seen on traditional platforms. Initially, these commercials will be rolled out in the U.S., U.K., Germany, and Canada in early 2024. Later stages will see France, Italy, Spain, Mexico, and Australia joining the ranks. For viewers who wish to maintain an ad-free experience, Amazon offers an option to do so for an additional $2.99 per month.
Why Amazon is Jumping on the Ad Bandwagon
Amazon cites the need to “continue investing in compelling content and keep increasing that investment over a long period of time” as the reason behind this shift. With its acquisition of MGM Studios for $8.5 billion in May 2021 and the rights to NFL’s “Thursday Night Football,” Amazon has been aggressively scaling up its content library. Advertisements offer a new revenue stream that can support these high-value investments.
Impact on Consumers
While the introduction of ads might be a good business move, it poses a dilemma for consumers. Amazon Prime Video has been part of the overall Amazon Prime membership package, which already includes free shipping, music streaming, e-books, and other benefits. Adding commercials into the mix could make subscribers question the value they’re getting for their membership fee. However, the option to keep the service ad-free for an additional charge provides a choice for those willing to pay for uninterrupted viewing.
Lessons from Netflix
Netflix, Amazon’s primary competitor, launched its first ad-supported tier in November 2022, called “Basic with Ads.” The introduction was met with mixed reactions. While some users appreciated the reduced cost, others felt betrayed by the move away from an ad-free experience. According to estimates, Netflix’s ad revenue for 2022 was $1.4 billion, accounting for about 10% of its total revenue. This shows that ad-support can indeed be lucrative, but the long-term effects on customer loyalty and brand perception remain to be seen.
The Future of Ads in Streaming Services
According to Hanlon, the minimal ad loads seen today in premium streaming services are “probably as good as it is going to get.” He expects that over time, ads will become more prominent, with bigger loads per break. This poses a dilemma for streaming services: they need to balance the influx of advertisements against the risk of losing subscribers who prefer an ad-free experience. “I’m not certain that advertising solves all problems,” Hanlon adds. “It could make some of them worse.”
The Bottom Line
The advent of commercials in Amazon Prime Video signifies a paradigm shift in the streaming industry, pulling it closer to its traditional television roots. While this provides a new revenue channel for platforms, the consumer’s perspective is far more complex. As the lines between streaming and traditional TV continue to blur, one thing is clear: the world of entertainment is in the midst of transformative change, and only time will tell where this leads us.
