“We think conservatively it could add $3 billion [to Amazon’s revenue] if they’re just showing three minutes of ads every hour under the advertising community’s current go-to-market,” Walmsley said on Yahoo Finance Live (see video above).
“But if they actually increase those ads closer to six minutes an hour, then it could obviously double that,” Walmsley continued. You’re talking about $6 billion in potential ad revenue, when standard linear TV only airs advertisements for around 16 minutes each hour.
Beginning in early 2024, Amazon intends to introduce adverts to its video streaming service. In comparison to linear TV providers and other streaming services, the company claims to have “meaningfully fewer” advertisements.
A $2.99 upgrade to an ad-free subscription will also be available. The current Amazon Prime subscription, which costs $14.99 per month or $139 annually, includes Prime Video. The monthly cost of a solo Prime Video membership is $8.99.
Even Walmsley’s projections may be too low when it comes to the increase in Amazon’s revenue.
“We think the impact of a global rollout is in the range of $6.6 billion to $8.0 billion of incremental revenue,” Wedbush analyst Scott Devitt wrote on September 24. “
The ad-free option ($2.99/month) implies a roughly 20% increase over the U.S. monthly pricing of Amazon Prime ($14.99), or a 26% increase over the annual cost ($139).
For a while now, the business has needed to change how it approaches monetizing Prime.
“We’ve seen, especially in markets like the US, that Prime adoption has slowed quite a bit,” he said on Yahoo Finance Live. “You can see it in their revenue line from subscriptions. I believe they have reached the stage where they can begin to make more progress towards actually directly profiting through ads.
According to Walmsley, Amazon is obviously interested in the lucrative margins for Prime Video advertising.
Because consumers frequently have already paid for the content, he added, “Amazon’s incremental margins on this are likely to be quite high.” They either fully own it or have a licence to essentially give it to Prime customers. Therefore, we don’t believe that there will be a significant increase in cost if they begin to run advertising and earn money from them.