As Amazon Charges Ahead On SVOD, Whither Advertising?

StreamingUpdated with statement from Amazon.

Amazon’s forthcoming $8.99-a-month subscription video-on-demand (SVOD) service offers strong new competition to Netflix and Hulu. Will it include advertising as well?

Not at first, but there is an internal debate at Amazon around the proper role of ads in its video offering.

According to one source with knowledge of Amazon’s video pursuits, Amazon is being deliberate in weighing the opportunity for SVOD in contrast to ad-supported video-on-demand (AVOD) offerings.

That source indicated Amazon is being “very cautious” regarding the route to monetization, and cited a low-key “culture clash” between the AVOD and SVOD sides of its business.

“Everyone is trying to understand what programmers are going to do about Netflix, and where they will ultimately [monetize their] content,” that source said.

In statement shared with AdExchanger, an Amazon spokesperson said, “We’re always experimenting on behalf of our customers, including experimenting with ads. Prime Video will remain ad-free.”

First reported by The New York Times, Amazon Prime Video is a major development in SVOD, according to Jim Nail, a principal analyst at Forrester.

“Amazon is taking Prime from being a loss leader to really making video a product in its own right by going after monthly subscribers and going straight at Netflix head to head,” said Nail. “They’ve got a powerful offering between their library of content and original programming, which will definitely mix up the world of SVOD.” 

Among the SVOD providers, Amazon is perhaps the best suited to create meaningful video ad opportunities around its entertainment offering.

Since its inception in 2011, one of Amazon Prime Instant Video’s core tactics was “cross-selling” consumers in its ecommerce marketplace (Amazon leadership’s phrase for pulling users who are on a free Prime trial basis farther down the purchase funnel).

Aside from its Prime Instant Video offering, the company has integrated video inventory into ecommerce ad units, and has surfaced video ads in search results linking directly to product detail pages. The company has also run pre-rolls before certain short-form content like game or movie trailers.

Although Amazon was rumored to be developing an ad-supported streaming video service unbundled from its $99-a-year Prime membership back as early as 2014, Amazon did not confirm its interests at the time.

According to a recent report from equity research firm Pivotal, SVOD services surpassed the 50% mark for penetration in US households at the end of February.

Nielsen data shows Netflix retains a strong lead with 45% penetration in US homes, while Amazon Prime reaches 21% of US households and Hulu 10%.

Pivotal senior analyst Brian Wieser noted that the rise in SVOD services invested in original content could spark an arms race among traditional and streaming providers.

Amazon, for instance, spent more than $3 billion on original video and music content last year for its streaming service, according to an estimate from Wedbush.

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