Wondering why Amazon is rolling out ads to its Prime Video service? One analyst can offer at least 3 billion reasons.
Amazon stands to generate a lot of revenue based on the number of ads it decides to play. In an interview with Yahoo! Finance, UBS internet analyst Lloyd Walmsley predicted “conservatively it could add $3 billion” to Amazon’s revenue. That is if Prime Video shows only three minutes of ads or less per hour.
Amazon is the latest company to jump into the lucrative world of media advertising, something every other streaming service already offers. But instead of a lower tier with ad, Amazon is adding commercials for everyone (unless you pay to go ad free) since it already comes included with a Prime subscription.
The result may be a jarring change for subscribers accustomed to tuning into shows like Jack Ryan or Reacher and watching it free of commercials.
Walmsley said Amazon could generate as much as $6 billion in ad revenue by showing six minutes of ads, which he notes still clocks in ten minutes less than broadcast television.
“The incremental margins on this are likely to be quite high for Amazon because, in many cases, they’ve already paid for the content,” said Walmsley. “They either own it outright, or they’ve licensed it to basically provide it to Prime users. So we don’t think that there’s a lot of incremental cost as they start to show ads and generate ad revenue.”
Wedbush analyst Scott Devitt offered a different estimate on Amazon’s potential revenue boost.
“We think the impact of a global rollout is in the range of $6.6 billion to $8 billion of incremental revenue,” said Devitt. “The ad-free offering represents a roughly 20% hike to the monthly Amazon Prime subscription price in the U.S. or a 26% increase on the annual fee.”
Amazon said it aims to show “meaningfully fewer ads than linear TV and other streaming TV providers” but did not venture an estimate. Prime members in the U.S., U.K., Germany, and Canada will start seeing ads in early 2024, while France, Italy, Spain, Mexico, and Australia should expect to see them later next year.
Prices for an Amazon Prime membership won’t increase next year, but U.S. accounts can opt out of the ad experience for an additional $2.99 a month. The ad-free add-on will be extended to other countries, though Amazon was not immediately available to comment as to when.
Amazon will send out a notification before ads start interrupting videos, with instructions on how to sign up for the ad-free tier.