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The launch of
advertising as the default on Prime Video has had an “immediate and dramatic
impact” not just on Amazon’s streaming service but on the entire ad-supported
subscription streaming ecosystem, according to Hub Entertainment Research in
the firm’s latest churn study.
Hub’s
quarterly TV Churn Tracker “provides the strongest evidence yet that
the majority of consumers will opt for lower cost ad-supported video services
over higher priced premium ad-free offerings,” the research firm contends.
Since launching ads
in the U.S on January 29 as the default Prime Video tier Amazon has
successfully converted 85% of its subscriber base, modeled by MoffettNathanson
analysts in January to be around 70 million active households. Only 15% have
opted to pay an extra $3 per month to get the service ad-free. Prime Video now
has the highest proportion of any SVOD streaming service of subscribers on its
tier with ads.
That rocket boost
to the ad-supported market has increased the total proportion of all U.S
streaming customers using subscription ad tiers by ten percentage points in
just one quarter while those who watch only ad-free SVOD was down by nine
compared to Q4 2023.
It will hardly come
as a shock to analysts who predicted that Amazon’s strategy of auto-enrolling
subscribers onto the ad-tier (forcing them to opt-in to pay more to go ad-free)
would reap benefits.
“Rather than
waiting to get users onboard to the ad tier plans, Amazon’s strategy will
immediately convert its users to an ad supported plan, and hence provide a
sizable audience for ads from day 1,” wrote Macquarie Research’s Tim
Nollen in December.
“We strongly
believe that Amazon’s decision to add advertising to Prime Video will be a
disruptive force to commoditized AVOD players, siloed CTV platforms and non-top
20 linear cable networks,” declared MoffettNathanson analysts in
January.
“Virtually overnight, Amazon Prime Video dramatically
transformed the video advertising ecosystem,” said Mark Loughney, Senior
Consultant to Hub in a release accompanying the report. “Suddenly advertisers
have the ability to reach tens of millions of viewers on one platform, with
robust targeting capabilities and a vast retail capability. Amazon has
immediately launched themselves into ‘must buy’ territory for advertisers and
media agencies.”
Hub found there to
be no measurable effect on either Amazon’s subscription levels or the overall
rate of SVOD subscription as a result of Prime Video’s introduction of ads.
Hub’s quarterly TV Churn Tracker is based on a survey of 6,338 US consumers age
16-74, who watch at least one hour of TV per week. According to Hub, 54%
said they subscribed to Prime Video in Q1 2023, a figure that has risen to 57%
one year later after the introduction of the ad-tier. The figure also rose
compared to the 55% who subscribed to Prime Video in Q4 2023.
Similarly, AMC+, which launched its ad-supported
streaming plan last September, saw no effect on the service’s overall
subscription rates.
The almost
immediate conversion of tens of millions of Prime Video subscribers to the
ad-supported tier is in stark contrast to Netflix, which made its move into
advertising at the end of 2022 and where 78% (of its US subscribers,
per the Hub report) still opt to pay more for an ad-free experience.
Comparative figures for ad-supported share of total
subscribers for other SVODs with ad plans are: Peacock (80%), Hulu
(72%), Paramount+ (69%), Discovery+ (55%), AMC+ (53%), Disney+ (41%) and
Max (26%), per Hub’s data.
As the Hub put, it,
viewers are clearly accepting of advertising in streaming video, and Amazon has
capitalized.
Analysts
including Omdia have previously forecast that the streaming platform
is set to generate more than $2 billion in incremental ad revenue in 2024
thanks to the ad-supported service - in addition to revenue already generated
by the sale of ad slots during live sports broadcasts on the service.
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