Can Amazon Compel Consumers to Shop from Their Televisions?
Starting today, Amazon.com (AMZN), the world’s largest online retailer, will join its streaming peers like Netflix and Walt Disney and begin running ads on its U.S. Prime Video service. Amazon hopes to generate new revenue for its $50 billion-plus advertising business and persuade consumers to shop from their televisions. Amazon has an unrivaled delivery network that can ship millions of products to most of the U.S. population in a day or less and is counting on its leadership to attract advertisers to its Prime Video service.
Companies have been shifting their marketing budgets from traditional television to streaming services. Amazon hopes to boost advertising that could compel consumers to make purchases via smartphones, remote-controlled devices, or voice-activated services. Insider Intelligence said, “Prime Video might be Amazon’s best hope to make shoppable TV actually happen, and that shoppable video ads will be part of its strategy to get brands that are already selling products on Amazon to advertise on Prime Video.”
In Amazon’s new plan, Prime subscribers will see commercials in movies and TV shows they watch unless they choose to pay an extra $3 a month for an ad-free service. Amazon expects Prime Video ads to reach 115 million U.S. viewers monthly and plans to air fewer ads than television and other streaming providers to avoid alienating viewers. Bank of America estimates that 70% of Prime subscribers will opt to watch commercials rather than pay the extra fee to avoid them.
In an attempt to boost sales, Amazon is offering advertising rates lower than those of such competitors as Netflix and Disney+ and isn’t requiring large spending minimums that can be typical in television. Bank of America projects that the new business from Prime Vide ads will immediately generate nearly $5 billion in annual revenue for Amazon, with $3 billion from ad sales and an additional $1.8 billion from Prime subscribers who opt to pay the higher price for ad-free content. Insider Intelligence estimates that Amazon will surpass Google’s YouTube next year to be the number 2 seller of connected TV advertising in the U.S., behind Hulu.
Commercial IQ, an e-commerce software platform that oversees $20 billion in sales on behalf of 2,200 brands, said, “Nearly all of our customers are buying Amazon video ads as Amazon has a very unique advantage because it can thread the shopper journey from the TV screen to the shopping cart in a way that no one else can.” However, PacVue, a digital marketing firm that oversees $13 billion in ad spending, said, “Amazon knows all of your shopping behavior, but the challenge is all of the clunky steps involved in getting people to shop from their TVs.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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