Despite forcing all Prime Video subscribers into the ad tier in January unless they paid an extra $3 per month, Amazon apparently hasn't tapped into Prime Video's full advertising potential yet. Amazon's advertising business is still largely dependent on ads shown on Amazon's website, Amazon CFO Brian Olsavsky told investors in August. In the first full quarter when Prime Video was available with ads, Amazon's advertising business grew slower than expected than in recent quarters, with ad sales missing analysts' estimates ($12.77 billion compared to $13 billion).
That said, advertising remains one of Amazon's fastest-growing businesses with the highest margins, and the conglomerate is keen to cultivate this. Amazon has reportedly already surpassed its 2025 Prime Video ad spend target.
Amazon has also been competitive on ad pricing, reportedly offering lower prices than Netflix, while creating an early advantage by pushing all its subscribers into ad tiers and already attracting advertisers with its e-commerce business.
A fine line
With Amazon's advertising business growing and the company experiencing minimal pushback since launching Prime Video with ads, the decision has been made to move on and see how much more subscribers are willing to tolerate.
On the one hand, those who have already watched ads on Prime Video are open to whatever Amazon's advertising department is willing to accept.
However, others may think they already paid their dues with the current ad settings. For subscribers fed up with streaming tactics like rising prices, changing libraries, and password crackdowns, there's a fine line between an acceptable and a disruptive amount of advertising. Ad fatigue can also make commercials less effective.
At least for now, ad levels make business sense for streaming providers, most of which are aiming to achieve or maintain profitability. Advertising subscriptions make up 38 percent of the streaming market and represented more than half of new subscriptions per antenna in the fourth quarter of 2023 and the first quarter of 2024.
As long as people continue to pay for ad subscriptions, streaming providers will look for more ways to use viewership to generate ad dollars. With Amazon getting more ads next year, we can anticipate more streaming services to test how many ad customers will accept.
