Why Amazon’s retail platform positions it to dominate in streaming

Early streaming hits like Orange is the New Black and House of Cards reportedly cost about $4 to $5 million an episode to make.

Since then, that price tag has increased many multiples for shows like Stranger Things, which reportedly cost Netflix $30 million per episode by its fourth season, or Prime Video’s The Lord of the Rings: The Rings of Power, which cost twice as much.

By 2020, Disney+, Apple TV+, Peacock and HBO Max launched, further crowding the streaming marketplace and intensifying competition for subscribers and revenue. That’s part of the reason Netflix has cracked down on password sharing — and introduced an ad-supported tier. Just one month later, Disney+ followed with an ad tier of its own.

According to ad execs, jockeying for revenue is the nature of the beast in the 2023 streaming marketplace – and sellings ads is essential to growth, even for platforms which predicated their offerings on ad-free content.

“If you look at the lifecycle of all the streaming services, they start out just trying to build a giant user base with great content,” said Ross Walker, senior paid media manager at digital marketing platform Acadia. “But, as everyone finds out, great content is really hard to come by … [and] eventually [streaming platforms] realize they're just a movie production house, or a TV studio, because you need to produce fresh content to keep the eyeballs on there.”

Enter Amazon

In this context, it was no surprise when the Wall Street Journal reported in early June 2023  that Amazon is planning an ad-supported tier for Prime Video as well.

Amazon was predictably coy about the news, saying in a statement, “We don’t comment on rumors or speculation.”

Still, media buyers and brands are already buzzing about the potential an ad-supported Prime Video tier presents, given Amazon’s unparalleled access to consumer purchase data through its holistic ad platform.  

Zach Weinberg, vice president of e-commerce at performance marketing agency Reprise Media, noted Amazon continues to build out its ad platform beyond retail media as it figures out where its ad products have the potential to live. In the last decade, Amazon Advertising has evolved from sponsored products and brands to include display ads, video ads and a demand-side platform (DSP), netting nearly $38 billion in revenue in 2022 alone.

“I think [an ad tier] makes complete sense — given the fact they can tie very directly to purchases, to revenue, to sales — that they would start to offer a product that theoretically [enables] advertisers to use their [Amazon Marketing Cloud] platform to understand what the results and what the performance of those ads are, as it relates directly to the sales of their product,” Weinberg said.

Plus, Amazon has the same advantage over its streaming competitors that it does over Facebook and Google: Sales data. Experts say an ad-supported video tier on Prime will make the e-commerce giant an even more formidable force in advertising, as it can help brands evaluate whether their TV ads move products.

Historically, advertisers have viewed Amazon’s ad stack as retail-focused, but Walker noted additional video inventory will help Amazon convince brands and agencies alike they should “come to [Amazon] for all the advertising activations that you might want and leverage our first-party data on who's shopping for what.”

Amazon is also no stranger to video ads, he added, noting video offerings on Twitch have just gotten bigger and bigger,” including pre- and mid-roll ads, which he described as “pretty ubiquitous on the platform now.”

But according to David Campanelli, EVP and chief investment officer at Horizon Media, Amazon’s competitive edge is limited to endemic brands, or those that sell products on Amazon. While Amazon is actively trying to prove its value to non-endemic brands, “if you're buying cars or mortgages or insurance, there's a lot of categories that aren't relevant to Amazon,” he added.

Questions also remain about pricing for consumers as streaming ads factor into the overall cost of a Prime subscription membership, as well as pricing for advertisers.

“A lot of our brands, when they want to do ads on streaming services, what they find is that the costs are much higher,” Walker said. “And so what is it going to be like when it's on an even more restricted inventory supply, like Amazon Prime Video?”

The other guys

A more competitive Amazon means other streaming platforms will have to lean more heavily on partnerships with retail media networks from the likes of Walmart, Target and Kroger in order to provide the type of granular reporting advertisers will receive from the e-commerce giant.

“They'll need to figure out a way to have a technology integration that allows for some of that closed-loop measurement,” Weinberg said.

According to Weinberg, DSPs like the Trade Desk, which enable these partnerships, stand to benefit by sitting between retail media networks and brands and being able to facilitate closed-loop measurement. 

The Trade Desk says it works with 80% of the biggest retailers in the U.S., including Walmart, Target and Walgreens.

“The Trade Desk definitely has a role to play in the ecosystem as they've already made it very clear, particularly with their integrations across these retailers when it comes to digital offsite audience extensions for closed-loop measurement within retail media,” Weinberg added.

Still, he conceded Amazon is in “a much better position” because it can directly integrate its own sales and advertising data vs. relying on a third-party.

“The other streaming services need to figure out what are the right partnerships so they can understand how the ads on their platforms are driving sales,” Weinberg said. “In order to compete, the streaming service providers are going to need to be able to offer a partnership that enables delivery of that performance data and shows the sales that they're driving to substantiate the cost they're asking from brands at the same time.”