The streaming video-on-demand (SVOD) landscape is ever evolving, and Amazon Prime Video has announced they will introduce ads in 2024, a move that holds profound implications for advertisers and the broader UK TV market.
The Evolution of SVOD Services
Their decision is part of a broader strategy to boost revenue which began in February 2022. The company increased its membership fees by a substantial 17%, laying the groundwork for transformation. Other streaming giants, including Netflix and Disney+, have introduced ad-supported tiers alongside their ad-free models to drive revenue. Yet, recent research from Ampere Analysis suggests that, in the U.S, only 2% of Netflix and Disney+ subscribers choose ad-supported packages. Clearly, many viewers still prefer a seamless, ad-free experience.
In contrast, platforms like Peacock, Paramount+, and Hulu launched with ad-supported tiers right from the start. They now boast significantly more subscribers willing to exchange advertisements for more budget-friendly viewing. In the U.S, Peacock alone has over 30 million ad-supported subscribers, while Paramount+ boasts over 25 million. More remarkably, over 90% (roughly 45 million) of Hulu’s subscribers opt for the ad-supported tier.
Launch Strategy
Timing significantly influences the type of audience these services attract. Launching with ad-free options first may inadvertently limit appeal to a cost-conscious viewer. Alternatively, platforms that launch with ads, risk losing more affluent customers (which advertisers want to reach) who have already migrated to the ad-free tier. Recognizing this, Netflix made a bold move by removing its cheapest ad-free basic tier for new subscribers.
Potential Impact on the UK TV Market
With 12.9 million UK households already subscribed, Prime Video has the potential to compete on a level playing field with traditional UK broadcasters in terms of monthly active users. If Prime Video don’t introduce an ad-free tier, it could become an ad-supported VOD platform with equally competitive scale and quality.
Netflix took a year to amass an ad-supported user base rumoured to be over 5% the size of ITV's and Channel 4's. Amazon Prime Video, with its vast user base, could achieve this even more quickly.
If we regard Prime Video as a TV channel, it sits in the top three most-watched for ages 16-24 and 25-34, and top five for 35-44. Even if half of Prime Video's users upgrade to an ad-free tier, the platform would still sit in the top six channels for each of these age demographics. Amazon's approach should excite advertisers. It opens fresh potential to embrace a vast audience – a rare opportunity in the Connected TV (CTV) space, and one to be seized.
