Amazon Prime Video Ads: Setting Expectations In a World of Diminishing TV Reach. Outdoor and Audio To The Rescue?

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Since Amazon made its announcement on Sept. 22 that it would include limited ads to Prime Video, I’ve seen several estimates for that understandably tie to data from Nielsen’s The Gauge, which is probably the best independent measure of TV consumption available.   Although the move is certainly going to be positive for Amazon, as I’ve written about here, I’ve seen some relatively aggressive assumptions about the opportunity at hand, especially from Wall Street.

I don’t think enough of the analyst community appreciate that Amazon’s market share as tracked in The Gauge includes all viewing through all Amazon apps on televisions.   It shouldn’t be a surprise that this metric includes Freevee, which is already monetized via advertising, Prime Video Channels – subscriptions to other streaming services, most of which are not likely going to be monetized for advertising by Amazon – and content bought on demand, as well.    

My guess is that maybe a quarter of the tracked consumption is already monetized with ads via Freevee and at least another quarter is Prime Video Channels, which won’t likely present opportunities for advertising (although never say never).   

Backing out the (let’s say) heaviest users of the service who probably will pay $2.99 on a monthly basis to avoid ads – I’d assume a quarter of users, but half of usage – and we end up with  around a quarter of Amazon’s tracked consumption as newly monetizable with ads.   If 95% of broadcast and cable’s 50% TV viewing share were for ad-supported consumption today and, let’s say 20% of consumption of streaming’s ~30% ex-YouTube consumption were ad-supported (and we assumed these shares held stable), the announcement would reflect around 1.5% of total ad-supported TV consumption.   If higher CPMs offset lower ad loads, that would theoretically equate to around $1 billion of incremental revenue from advertising in the US and maybe something similar in other countries around the world. (Of course, for Amazon, the extra $2.99 per month from a large number of subscribers looking to avoid ads could easily amount to more incremental revenue than the new advertising revenue they will generate, and given the other reasons consumers subscribe to Prime, churn is not likely to be as high as for other services instituting price increases).

A bigger point at an industry level is that selling ads on Prime Video only provides incremental help to large brand-oriented marketers, who have a looming problem: as more and more consumption on TV occurs through ad-free services (and I think large numbers of consumers will continue to prefer higher-priced ad-free services to lower-priced ad-supported ones, at least for the services they watch the most of), it will become impossible to accomplish the kinds of campaign reach metrics on television that advertisers were historically used to at any price. Although at one point in time connected TV inventory probably did produce incremental audience reach, my guess is that the audiences most likely to choose or stick with ad-supported tiers are probably the same consumers who will most heavily watch FAST services and free broadcast television. Incrementality will be limited so long as advertisers focus on maximizing reach on TV sets.

I’ve written about some approaches that marketers may choose to take to address this problem, such as by redefining what video is, or by focusing more on buying audiences from today’s TV networks who might bundle a wider array of inventory across platforms and media formats. 

But another solution, at least for those who feel their spending with digital platforms is saturated, will be to invest more heavily in different media or with altogether different media owners.  

In general I think that outdoor advertising is best positioned for longer-term growth.  As I wrote last month when I published my US advertising forecast, it was already the case that prior to the pandemic outdoor advertising was lauded for its experiential qualities. In a world where television looks significantly less attractive, outdoor advertising probably looks even better by comparison.

Digital forms of outdoor advertising should generally take more share and grow at a faster pace, aided by ongoing investments in new screens in new places and the ongoing shift of inventory towards digital faces for existing inventory. To the extent that advertisers need incremental reach, especially of audiences that pay to avoid ads wherever they can, outdoor advertising is well positioned for ongoing growth.

By contrast, I expect that audio advertising will likely be flat in the coming years, supported by high degrees of effectiveness and ongoing investments into digital services, including podcasts, which helps the industry to better capture national advertisers who might otherwise have avoided locally-skewed traditional radio.

I would anticipate growth for digital audio, but not for the terrestrial linear form. regardless of its relative effectiveness. Growth there will remain limited because the smaller advertisers who historically dominated radio generally continue to have easy access to more scalable alternatives, such as the large digital platforms – social networks and search, in particular.  However, that doesn’t mean that audio can’t be disproportionately effective and, for advertisers who are looking to accumulate audience reach wherever they can, helpful, too.