Amazon (AMZN) entered the ad-supported streaming space in January by defaulting all of its Prime Video subscriptions to ads. 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 current monthly rates of $14.99 for Prime delivery members and $8.99 for non-Prime members—or those who only subscribe to the standalone video service. Subscribers who want the ad-free version will now see their monthly bill go up by $3 a month.
Amazon's entrance builds on the presence of Netflix (NFLX) and Disney (DIS), which introduced their respective ad tiers in late 2022. That means an already accelerated expansion of ad-supported options for consumers — along with prospective ad buyers.
"There's no question it has created an excess of supply 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.
Bottom line: companies like Disney must work that much harder to lure advertisers to their platforms.
MoffettNathanson estimated Prime Video could add over 50 billion impressions to the connected TV (CTV) market this year, "an amount that is likely to dwarf a lot of the smaller players in the space" as increased inventory simultaneously drives down the price for ads.
"Amazon knows how to gain market share and they know how to use price to gain market share," said Mark Douglas, CEO at MNTN, an ad tech company that specializes in the CTV space. "That's one of the big things this week [at Cannes] — Amazon is being pretty aggressive in terms of lowering price."
Ad buyers have paid Amazon a reported cost per thousand, or CPM rate, between $30 and $35. The low price has forced competitors to follow suit. Netflix dropped its CPM rate from a previous $39 to $45 range last summer to roughly $29 to $35 currently, according to the Wall Street Journal.
"Why they can do that and the rest of the industry considers that a problem is because Amazon has [a] big search advertising business and they can bring those advertisers over into Prime," Douglas said. "They can monetize the content way better and bring down the price. That is the main dynamic at work right now."
'It just raises the stakes'
Amazon has one of the broadest audience reaches of all the streaming platforms due to its Prime delivery service and ability to keep consumers within its ecosystem. That's helped the company easily secure customer data and increase its targeting capabilities — both attractive to advertisers.
"It just raises the stakes," Macquarie analyst Tim Nollen previously told Yahoo Finance when asked about Amazon's ads rollout. "Everybody now faces another competitor and a very large supply of inventory that they're going to be competing for."
But there might be enough inventory to go around, especially as more consumers opt for ad-supported streaming options.
According to subscription analytics platform Antenna, which released its second quarter "State of Subscriptions" report on June 13, more users are selecting cheaper ad plans, with 38% of overall accounts now choosing ad tiers.
Those trends have continued to encourage the shift of ad buyers from linear to streaming, with MoffettNathanson predicting total advertising video on demand will grow 33% this year, compared with a 17% increase in 2023.
"Platforms with the most inventory, least must-have content, and worst targeting capabilities are most at risk," the firm said.
But Douglas believes competitiveness will force the rest of the industry to adapt to Amazon's moves.
"There's a transformation underway," the executive said, explaining Amazon and other Big Tech companies concentrate on capturing overall market share rather than securing the highest price for a 30-second ad, the prior standard for traditional media buying.
"The rest of the industry is not set up for that. That's the problem," he said. "Still, I actually don't think it's some big long-term threat where Amazon is going to eat everyone's lunch. In the near term it's accelerating trends that needed to happen anyway."
But, he cautioned, "it's going to take thinking a little more like a tech 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 alexandra.canal@yahoofinance.com.
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