Amazon.com has announced plans to introduce ads on its popular streaming service, Prime Video, starting from the end of next month. This move is aimed at increasing the revenue generated from its streaming content.
A New Ad-Free Option and Content Exclusions
Following in the Footsteps of Competitors
While Amazon's entry into ads on its streaming platform may not significantly alter the industry landscape, it does follow in the footsteps of industry giants Disney and Netflix, both of which already offer cheaper ad-supported tiers. However, this move by Amazon could further contribute to the decline in traditional TV advertising and allow the company to seize a larger share of advertising revenue from its streaming competitors.
Monetizing Prime Memberships and Enhancing Revenue Streams
Amazon emphasizes its commitment to providing "meaningfully fewer ads than linear TV and other streaming TV providers." By taking this stance, the company aims to attract and retain members who may be deterred by excessive advertising. Ultimately, this move allows Amazon to continue investing in compelling content and position itself for consistent long-term growth.
The Growing Potential of Amazon Prime Video in Advertisements
Since February 2022, Amazon Prime's pricing has remained stable, with the monthly membership cost increasing from $12.99 to $14.99. The infrequency of price hikes may enhance customers' willingness to pay for the ad-free service.
For advertisers, Prime Video presents an enticing opportunity. Amazon's vast customer data can be leveraged to target ads more effectively and achieve higher engagement.
According to Wedbush analysts, led by Scott Devitt, Amazon's ad revenue growth is projected to outpace the industry as a whole in 2024. Devitt attributes this to Amazon's strategic focus on maximizing the potential of Prime Video. Additionally, strong retail media growth and the expansion of Amazon ads on external platforms will contribute to this success.
In the realm of retail media, Amazon already wields substantial influence. Devitt foresees a 22% global growth in spending in this area by 2024. Furthermore, Amazon aims to compete with advertising giants like Google and Facebook by extending its ads for "sponsored products" beyond its own ecosystem to platforms like Pinterest and BuzzFeed.
Given these promising prospects, Wedbush designates Amazon as its top pick in the e-commerce sector for 2024. The company rates Amazon shares as Outperform, setting a target price of $210. This represents a potential gain of 36% from the Wednesday closing level.
