Prime Video’s ad tier entry makes immediate impact on ad-supported streaming

The launch of advertising as the default on Prime Video has had an “immediate and dramatic impact” not just on Amazon’s streaming service but on the entire ad-supported subscription streaming ecosystem, according to Hub Entertainment Research in the firm’s latest churn study.

Hub’s quarterly TV Churn Tracker “provides the strongest evidence yet that the majority of consumers will opt for lower cost ad-supported video services over higher priced premium ad-free offerings,” the research firm contends.

Since launching ads in the U.S on January 29 as the default Prime Video tier Amazon has successfully converted 85% of its subscriber base, modeled by MoffettNathanson analysts in January to be around 70 million active households. Only 15% have opted to pay an extra $3 per month to get the service ad-free. Prime Video now has the highest proportion of any SVOD streaming service of subscribers on its tier with ads.  

Hub Entertainment TV churn graph
Only 15% of US Prime Video users have opted to pay more for ad-free streaming. (Hub Entertainment Research)

That rocket boost to the ad-supported market has increased the total proportion of all U.S streaming customers using subscription ad tiers by ten percentage points in just one quarter while those who watch only ad-free SVOD was down by nine compared to Q4 2023.

Hub Entertainment TV churn graph 2
(Hub Entertainment Research)

It will hardly come as a shock to analysts who predicted that Amazon’s strategy of auto-enrolling subscribers onto the ad-tier (forcing them to opt-in to pay more to go ad-free) would reap benefits.

“Rather than waiting to get users onboard to the ad tier plans, Amazon’s strategy will immediately convert its users to an ad supported plan, and hence provide a sizable audience for ads from day 1,” wrote Macquarie Research’s Tim Nollen in December.

“We strongly believe that Amazon’s decision to add advertising to Prime Video will be a disruptive force to commoditized AVOD players, siloed CTV platforms and non-top 20 linear cable networks,” declared MoffettNathanson analysts in January.

“Virtually overnight, Amazon Prime Video dramatically transformed the video advertising ecosystem,” said Mark Loughney, Senior Consultant to Hub in a release accompanying the report. “Suddenly advertisers have the ability to reach tens of millions of viewers on one platform, with robust targeting capabilities and a vast retail capability. Amazon has immediately launched themselves into ‘must buy’ territory for advertisers and media agencies.”

Hub found there to be no measurable effect on either Amazon’s subscription levels or the overall rate of SVOD subscription as a result of Prime Video’s introduction of ads. Hub’s quarterly TV Churn Tracker is based on a survey of 6,338 US consumers age 16-74, who watch at least one hour of TV per week.  According to Hub, 54% said they subscribed to Prime Video in Q1 2023, a figure that has risen to 57% one year later after the introduction of the ad-tier. The figure also rose compared to the 55% who subscribed to Prime Video in Q4 2023.  

Similarly, AMC+, which launched its ad-supported streaming plan last September, saw no effect on the service’s overall subscription rates.

The almost immediate conversion of tens of millions of Prime Video subscribers to the ad-supported tier is in stark contrast to Netflix, which made its move into advertising at the end of 2022 and where 78% (of its US subscribers, per the Hub report) still opt to pay more for an ad-free experience.

Comparative figures for ad-supported share of total subscribers for other SVODs with ad plans are: Peacock (80%), Hulu (72%), Paramount+ (69%), Discovery+ (55%), AMC+ (53%), Disney+ (41%) and Max (26%), per Hub’s data.

As the Hub put, it, viewers are clearly accepting of advertising in streaming video, and Amazon has capitalized.

Analysts including Omdia have previously forecast that the streaming platform is set to generate more than $2 billion in incremental ad revenue in 2024 thanks to the ad-supported service - in addition to revenue already generated by the sale of ad slots during live sports broadcasts on the service.