Amazon Prime Video can expect to generate more than $1 billion in 2024 as it starts selling advertising this month and that could rise to more than $1.7 billion in 2025, according to a new report from MoffettNathanson Research.

That number is for what MoffettNathanson calls “core Prime Video” and does not include ad revenues from Thursday Night Football, Twitch or Freevee.

“Amazon offers advantages in top-of-funnel reach and bottom-of-the-funnel targeting that are unique in the market and could easily siphon dollars from most competitors in time as they scale their go-to market efforts,” the report said.

The strength of what Amazon brings to streaming advertising is more bad news for traditional television.

“For linear media, we see this as another emerging pain point for cable network viability,” the report said. “For connected TV and ad-supported video on demand, while there is a race to the bottom from the emergence of free ad-supported streaming television (FAST) channels and non-targeted AVOD [ad-supported video-on-demand], Amazon could pressure the middle to higher end of the market, given its scale of impressions at relatively affordable prices.”

Prime Video’s core ad revenues are seen rising to $2.261 billion in 2026 and $2.757 billion in 2027.

MoffettNathanson called Amazon’s decision to automatically give all current Prime subscribers the ad version of the service a “savvy decision” that will quickly give it the kind of scale —70 million subscribers — that streaming leader Netflix is still trying to build more than a year after its launch.

The 15% of U.S. Prime Video households MoffettNathanson believes will choose to pay $2.99 a month to avoid ads would contribute about $400 million in incremental subscription revenue to the service.

Giiven Amazon’s e-commerce capabilities, MoffettNathanson said, its entrance into the ad market will affect all of its competitors.

If you add in spending on Thursday Night Football and Freevee, Amazon will have have $4 billion in connected TV and AVOD ad revenue in 2025, the biggest total in the market, according to MoffettNathanson. By comparison, ad revenues for Hulu would be $3.3 billion, Peacock $2.3 billion, Roku $1.9 billion, Paramount Plus, Tubi and Pluto all at $1.1 billion. 

Netflix’s 2025 ad revenues are expected to be just $400 million according to the report.

Helped by the elections and Olympics, MoffettNathanson expects traditional TV ad revenues to grow 1% in 2024. TV will resume its downward trajectory with a 9% drop in 2025.

With Prime Video entering the market, the AVOD market is expected to grow 18% in 2024, up from 17% in 2023.

“Putting this alt logether, we strongly believe that the emergence of advertising dollars on Amazon Prime Video, plus the continued secular tailwinds in CTV/AVOD, will be the most detrimental for the long tail of non-top 20 cable networks — especially those without live content,” the report said. 

MoffettNathanson said that the media companies likely to feel the most pain are Paramount and AMC Networks, because of their lack of diversified profitability away from linear TV and the limited live content on their cable networks.

Amazon Prime Video is joining the rush of streaming services looking to see more commercials during previously ad-free programming.

The commercials will begin appearing in early 2024, Amazon said in a blog post.

Prime Video will not be raising its price in 2024 but it will introduce a new, ad-free option costing $2.99 a month. 

Amazon currently runs commercials during its Thursday Night Football NFL telecasts. It also has Freevee, an ad-supported streaming TV platform that can be accessed via Prime Video.

Also Read: Amazon Has Bigger Ad Plans for Season 2 of ‘Thursday Night Football’

“To continue investing in compelling content and keep increasing that investment over a long period of time, starting in early 2024, Prime Video shows and movies will include limited advertisements. We aim to have meaningfully fewer ads than linear TV and other streaming TV providers,” Amazon said.

Starting with Netflix, one of the attractions of switching from traditional TV to paying for streaming was the ability to avoid commercials. But in the last year, most streaming services have started to add commercials in order to generate more revenue and turn direct-to-consumer losses into profits to satisfy Wall Street.

Two of the largest streaming services, Netflix and Disney Plus, introduced commercials late last year. Warner Bros. Discovery’s Max service recently started running commercials before previously ad-free HBO content and movies.

Streaming hasn’t been a slam dunk for streaming services launching ad products.

While volume in the connected-TV ad market has been growing rapidly, the prices of streaming commercials has fallen as supply has burgeoned. 

And Netflix recently announced that advertising revenue would not be significant because it is still ramping up the number of members subscribing to its ad-supported tier.

While Netflix is just building an ad sales and serving infrastructure working with Microsoft, Amazon is well-versed in ad sales and commerce, which may give its launch a smoother runway.

Amazon said what it calls Ads in Prime Video will be avaliable in the U.S., United Kingdom, Germany and Canada early next year. That will be followed by France, Italy, Spain, Mexico and Australia later in the year.

“We will email Prime members several weeks before ads are introduced into Prime Video with information on how to sign up for the ad-free option if they would like,” Amazon said. 

With the linear television business sinking, and taking the traditional advertising business with it, Paramount Global has staked its claim to being one of the leaders in digital advertising.

On Paramount’s earnings call Monday, CEO Bob Bakish said Paramount’s ad business posted a slightly smaller decline in the second quarter than in the first quarter. He added that in the upfront, Paramount saw positive low-to-mid-single-digit growth on volume.

“And in both cases, digital is a point of strength,” he said.

Most media companies are betting on advertising revenue to push their streaming properties closer to profitability.

Bakish made it a point to let analysts and investors know that “Paramount is a leader in the digital ad space,” and he enumerated the company’s digital ad capabilities.

“Our direct digital revenue is up by strong double digits year-over-year, powered by the premium content offerings on Paramount Plus and Pluto TV,” he said. “Three years ago, we launched EyeQ, our digital ad platform, as a simple and effective solution for advertisers to connect their brands to consumers at scale. Since then, it has seen incredible growth. 

“The EyeQ footprint now stands at more than 90 million full episode viewers domestically, and we expect to generate revenue approaching $3 billion this year, rivaling the best, the biggest players in digital video, and we’re building upon that strength internationally as well,” Bakish added.

Chief financial officer Naveen Chopra also highlighted streaming ad sales in his presentation.

“We are now growing [direct-to-consumer] advertising not just as a replacement for linear, but as a compelling video alternative for the long tail of advertisers who have historically relied on social media and short-form video advertising,” he said.

Paramount’s DTC ad business, mostly on Paramount Plus and Pluto TV, generated $421 in advertising revenue in the second quarter, up 21% from a year ago, or $78 million.

Traditional TV advertising is still much bigger. Paramount’s TV media group generated $1.946 billion in ad revenue, down 10%, or $228 million. 

“Looking ahead, we expect to see continued acceleration in D2C advertising growth in Q3 and we’re also bullish about the long term,” Chopra said.

The company sees more integration with buy-side ad tech platforms, leading to increased programmatic sales.

Paramount sees clients in a handful of categories, including pharmaceuticals, retail, movies and travel, starting to spend more ad dollars.

“That said, we see linear advertising recovering more slowly than digital and we expect the Q3 rate of change for TV media advertising will be relatively similar to Q2 with improvement in Q4,” Chopra said.

Paramount is ramping up its international ad-supported streaming business. Pluto TV has been launched in more than 35 markets, and the company plans to launch ad-supported tiers of Paramount Plus in certain markets.

“Why is this important?“ Chopra asked. “Simply put, it means the TAM [total addressable market] for connected TV advertising is much larger than typically imagined, and we’re proving it by giving a whole new class of advertisers the ability to tell their story on the TV glass.” 

Media buyer Magna and Roku said their research shows that new, more entertaining and engaging commercial formats create better results for advertisers.

As advertisers move to streaming, they are looking to take advantage of digital technology to create ads that are more innovative than traditional 30-second commercials.

Magna’s research unit, Magna Media Trials, working with brands including T-Mobile, Subaru and Tonal, looked at three formats developed by Roku and found that they lift ad recall, brand favorability and intent to search.

The three formats tested were:

• Thematic Tagged Vignette: A 30-second animated ad where a brand celebrates streaming.
• Roku Original Vignette: A 30-second ad where a brand references the Roku Original show being streamed.
• Watch Alongs: Ad breaks where a brand sponsors discussion about the show or movie being streamed. 

As a group, the new formats increase top-of-mind ad recall by 57% compared to traditional ads, lifted brand favorability by 8% and intent to search by 16%. 

The Thematic Brand Vignettes were good at generating attention with 65% of respondents saying the spots “taught me something new.” The Roku Original Vignette tripled the purchase intent of traditional ads, with a 10% lift. Watch Alongs improved recall by 66% versus 39% for traditional ads.

“In the current advertising environment, it is important to recognize that viewers can easily skip over advertising, but our study found they are less likely to do so if the ads are as entertaining as the programming and present a more enjoyable experience,” said Kara Manatt, executive VP and managing director, intelligence solutions at Magna. “One of the most memorable formats for viewers is Watch Alongs, likely because the advertiser is offering the viewer added value to the show they are watching.”

Magna Media Trials and Roku found that viewers are craving new ad experiences on streaming TV, with 94% saying that enhancement can improve the ad experience for them and increase potential returns for brands. The new format all worked better than traditional ads, creating more brand awareness and moving the viewer closer to purchase.

“Better TV storytelling for brands starts with Roku,” said Asaf Davidov, director, head of ad measurement and research at Roku. “The takeaway for marketers is clear — the key to winning the entire streamers’ journey is surprising and delighting beyond the traditional TV spot.”

The research utilized an at-home panel of 1,316 viewers that was divided into randomized exposed and control groups. ■

While streaming got a boost from the pandemic, the economic weakness caused by the virus hurt advertising aimed at streaming viewers, according to a new report from Conviva.

In its State of Streaming Report for the second quarter, Conviva said that ad demand dropped, with attempts to insert ads down 22% in the U.S. and down 28% globally, compared to the first quarter, due in part to the lack of sports.

But Conviva found that the quality of stream advertising improve, with viewers spending 38% less time waiting for an ad to start. Viewers leaving before an ad started dropped 22%. The picture quality of ads, as measured by bitrate, was up 53%.

“Shelter-in-place mandates skyrocketed streaming viewership in April, led by Europe which saw a 174% increase year over year,” said Bill Demas, CEO of Conviva. “Unfortunately advertising moved in the opposite direction with global demand significantly reduced due to COVID-19. We expect advertising to bounce back in the coming quarters as the industry and viewers acclimate to a ‘new normal’ including streaming being part of the everyday routine.”

Streaming growth slowed in May and June slowed from April, when viewing was up 81%, compared to the previous year.

Global share of smart TV viewing more than doubled as viewing time increased 239% year over year. Viewing was also up on connected devices. Viewing via Roku, Amazon Fire, Chromecast and others was up 61%. Viewing on game consoles was up 55%.

Connected TV devices had the largest share of viewing time in both North America (56%) and Europe (32%).