Streaming Wars: Amazon Prime Video Shakes Up Streaming Ad Market, Undercutting Netflix

The introduction of Amazon Prime Video's ad-supported tier has pressured Netflix's advertising plans and forced other top players in the streaming space to lower advertising prices amid ongoing 'streaming wars.' 

Financial Times reported that the streaming ad market was upended earlier this year when Amazon announced plans to incorporate ads into movies and TV shows streamed on its Prime Video Service. 

At the time, Amazon told customers, "This will allow us to continue investing in compelling content and keep increasing that investment over a long period of time, adding, "We aim to have meaningfully fewer ads than linear TV and other streaming TV providers. No action is required from you, and there is no change to the current price of your Prime membership." 

Amazon allowed customers to pay an additional $2.99 per month to avoid advertisements. 

FT noted that Amazon entered a highly competitive market for ad-supported streaming services. Its rivals, including Netflix, Max, Paramount+, and Disney+, have already introduced ad tiers for cash-strapped consumers.   

FT pointed out that Amazon is currently in the "up front" process, in other words, selling TV advertising time months in advance.

"Amazon's Prime Video is undercutting rival Netflix on advertising pricing, as it battles for marketers' attention in an increasingly crowded field of ad-funded streaming services," FT said. 

Executives at rival platforms and advertising execs say the spot price for ad space on Amazon is cheaper than Netflix but slightly higher than Disney.

According to advertising insiders, Amazon's move into the video ad market has already forced rivals to lower rates.

One rival executive mentioned Amazon's "vast supply of inventory" has pressured prices lower. He said, "They knew what they were doing in terms of flipping everybody over into the tier."

Amazon converted more than 200 million global subscribers to the ad tier unless they opt out by paying for the premium ad-free service. This means the platform has one of the most massive audiences to attract advertisers. Netflix, on the other hand, has about 40 million on its ad tier.

"Amazon is, in many ways, building the killer app," John Terrana, chief media officer at the ad firm VaynerMedia, told The Wall Street Journal last month. It has "premium content, live sports, immense scale," and advertisers can target ads to their customers and often see if a viewer bought the product on the platform.

Jonathan Carson, chief executive of industry data provider Antenna, told FT that Amazon's move earlier this year left it with a "sudden accumulation of an advertising audience, which is pretty powerful." 

In June, analysts at JPMorgan told clients that Amazon's multibillion-dollar advertising business was one of the company's "fastest-increasing revenue streams and one of its highest-margin businesses."

Chief executive Andy Jassy believes Prime Video can be "a large and profitable business on its own."  

So, as the streaming wars progress, Amazon's move to convert its entire Prime Video subscriber base to a new ad-supported version will be enough to increase market share in the ad space, driving down rates, which in return crushes competition.