Netflix revenues show the impact ads could have at Prime Video
Details
John Moulding
| 13 October 2023
2 Netflix revenues show the impact ads could have at Prime Video

Prime Video will be tapping a digital video advertising market that continues to grow despite economic uncertainty, and which is already proving lucrative for Netflix, but will be competing with international streamers including FASTs, and broadcaster streaming.

As the international streamer readies to introduce advertising next year, Richard Cooper, Research Director at Ampere Analysis, gave us some context on the model and the market opportunity. Pointing to the impact that advertising can have for international streamers, he points out that Netflix is now making more money per subscriber when they take the ad-tier option [standard with ads versus basic standard tier].

“When we apportion Netflix’s U.S. ad sales on a per subscriber basis and add it to the $6.99 cost of the ad-tier subscription, the total per-subscriber revenue is $1.84 higher than the $15.49 value of a standard monthly subscription,” he explains.

Despite Prime Video being bundled in many homes with shopping delivery, Cooper says we must be careful not to frame it as an ad-supported service – it is a premium SVOD with an advertising tier. “People still have to pay to gain access to the service,” he points out.

The potential for Prime Video as an SVOD with ads is clear. “In markets where Amazon [Prime Video] is supported by the retail arm they are typically the number two player, with a few million less subscribers than Netflix. In Germany it is the number one SVOD platform.”

Only “a very small minority” take Prime Video without the shopping delivery but consumers taking the bundle do value the service. “Within our consumer survey we ask if these people watch the Prime Video component, and around 70% do [across markets], plus or minus 5%. In the UK, 73% with Amazon Prime are watching on the Prime Video service.”

In markets where there is no Amazon retail and shipping delivery, Prime Video costs about two-thirds of the bundle cost. Penetration is much smaller where there is no retail arm, Cooper observes.

In addition to ad sales, Prime Video will gain $2.99 per month [in the U.S., where prices have been revealed] for every subscriber that wants to avoid ads [the cost of the ad-free option once ads are introduced]. Cooper believes the ad-supported option will appeal to price sensitive consumers.

At Netflix, where the video service is a standalone bill, it is easier to see the impact when pricing differentials are introduced, with ads supporting the lower-cost tier. “The ad-supported tier gives people another option instead of churning if they think it is too expensive. It also opens the service to a bunch of households that were on the cusp, but believed it was too expensive.

“Netflix effectively increased the size of their addressable market in the U.S. with their advertising tier.” Cooper points out that 11% of new subscriptions to Netflix in that market are taking the ad-supported tier.”