Amazon.com has significantly impacted Netflix’s advertising strategy by converting its entire Prime Video subscriber base to an ad-supported version. This strategic move is challenging Netflix to adapt its advertising approach amidst growing competition in the streaming ad market.
Netflix, seeking to expand its ad business, is now offering lower ad rates and incorporating new advertising methods, such as product placement. According to ad buyers, Netflix is negotiating ad prices of approximately $29 to $35 per 1,000 viewers, a notable reduction from the $39 to $45 it charged last summer. This adjustment aligns Netflix’s rates more closely with those of Prime Video, which has substantial ad inventory due to its large ad-supported subscriber base.
Amazon’s transition to an ad-supported model for Prime Video has significantly altered the streaming ad landscape. Prime Video’s extensive reach provides advertisers with ample opportunities, thereby affecting negotiations across the board, including those involving Netflix, YouTube, TV networks, and other streaming platforms. Analysts and ad buyers have noted that Amazon’s influence is driving down ad prices industry-wide.
Michael Nathanson, a media analyst, highlighted the impact of Amazon’s entry into the connected TV (CTV) market, describing it as a major disruption. This shift has forced Netflix to re-evaluate its ad pricing strategy. Netflix is now engaging in upfront negotiations, offering premium ad packages that allow advertisers to integrate their products into select programs. For instance, Netflix is offering integration opportunities in an upcoming drama series about bull riding featuring Tim McGraw, as well as larger sponsorships for live events linked to its programming.
Product integration is a highly coveted advertising method, as it has been shown to be more effective when viewers see a product within a show and then in a subsequent commercial. Although Netflix has historically done little paid product integration, the company is now capitalizing on this method to attract advertisers.
While Amazon does not disclose specific subscriber numbers, it has reported that its ad-supported Prime Video tier reaches an average of 115 million monthly viewers in the U.S. In comparison, Netflix’s ad tier reaches 40 million global monthly active users, a significant increase from the 23 million users reported in January. This substantial viewership makes Netflix an attractive platform for advertisers, despite Amazon’s extensive reach and premium content offerings.
John Terrana, chief media officer at VaynerMedia, emphasized Amazon’s strengths, including its premium content, live sports, and immense scale. He noted that Amazon’s platform allows advertisers to target ads effectively and track whether viewers purchase the advertised products on the platform.
Netflix’s push for upfront ad dollars comes at a challenging time. Several ad-holding companies are currently competing for Amazon’s lucrative ad-buying account. As part of their pitches, these agencies may commit to purchasing significant ad time from Amazon on behalf of their clients, which could influence the broader advertising market.
Greg Paull, co-founder of the consulting firm R3, noted that agencies often promise a “most favored nation” approach for their prospective media clients. This practice could further tilt the ad-buying landscape in Amazon’s favor, given its significant advertising spend. Amazon reported spending $20.3 billion on advertising and promotional costs last year, underscoring its substantial influence in the advertising industry.
Key Takeaways:
- Amazon’s conversion of Prime Video to an ad-supported model is driving down ad prices across the streaming industry.
- Netflix is reducing ad rates and offering product placement and premium ad packages to stay competitive.
- Amazon’s extensive reach and premium content make it a formidable player in the ad market.
- Netflix’s ad-supported tier has seen significant growth, making it an attractive platform for advertisers.
- Competition among ad-holding companies for Amazon’s ad-buying account is influencing the broader advertising market.
Conclusion:
Amazon’s entry into the ad-supported streaming market with Prime Video has significantly disrupted the advertising strategies of competitors like Netflix. As Amazon leverages its extensive reach and premium content, Netflix is adapting by lowering ad rates and exploring new advertising methods. This evolving landscape highlights the intense competition in the streaming ad market and underscores the strategic adjustments companies must make to stay ahead.
