If you keep an eye on Amazon (NASDAQ: AMZN), you know that the company has made significant strides in the world of advertising. In 2023, Amazon earned $47 billion from third-party sellers who paid to promote their products on its platform. This was an increase of $10 billion over 2022 and represented almost 10% of Amazon’s total revenue last year. Pretty impressive!
However, as growth in this area begins to slow, Amazon is turning to a new source of revenue: video advertising. Experts believe the TV advertising market could generate $3 billion in revenue for Amazon, although this may be an understatement.
Amazon enters television advertising
Yes, Amazon is now diving into TV advertising. In January, Amazon introduced an ad-supported tier to its Prime streaming service. Prime members who want to avoid these ads can pay an additional $2.99 ​​per month.
This move wasn’t entirely surprising, as many streaming services now offer ad-supported options to address rising content costs. What is surprising is how seriously Amazon takes this new business. Last week, Amazon made its first appearance at the annual “Upfronts” event, an event where traditional television networks such as Walt Disney and NBCUniversal present and sell commercial time to advertisers. With streaming video ads increasingly taking over traditional cable commercials, Amazon’s participation in the event was notable.
But how much revenue can Amazon expect from this new venture? Market research firm Omdia predicts that Prime Video will generate $2 billion in advertising revenue this year. Analysts at TD Cowen are even more optimistic, forecasting $3 billion.
These estimates could still be conservative considering the past and expected growth of the ad-supported streaming market.
Ad-supported streaming is growing rapidly
Cable television is rapidly losing subscribers. Data from Leichtman Research Group shows that less than half of American households now pay for cable TV, a trend echoed by eMarketer.
Where are these spectators going? The answer is clear: streaming services. Research from Parks Associates shows that the average American household subscribes to 5.6 streaming services. Many of these services include ads to help offset rising subscription costs. Parks Associates notes that half of American households now regularly use ad-supported streaming services and this number is expected to increase.
Advertisers follow viewers to these new platforms. Coherent Market Insights predicts that the global ad-supported video-on-demand (AVOD) market will more than double by 2030, reaching $71 billion. North America is expected to remain the largest AVOD market, accounting for almost 40% of this sector.
Nielsen data shows that Prime is the second most watched ad-supported streaming service in the United States, just behind Netflix. With 115 million Prime members in the US, Amazon is in a great position to capture a large share of the growing AVOD market. The same potential exists internationally.
Benefits for Amazon Stock
Considering the huge potential of the global AVOD market, the $3 billion revenue projection could be low. Amazon likely hopes to earn much more from its entry into television advertising.
Even if we take TD Cowen’s estimate of $3 billion at face value, there is still a significant indirect benefit for Amazon: retaining its core e-commerce customers. Prime members tend to spend twice as much on Amazon.com as non-Prime members. Making it more affordable to remain a Prime member is a smart move for Amazon, even without the additional ad revenue.
With additional revenue from Prime’s advertising business, the case for investing in Amazon stock becomes even stronger. Amazon’s expansion into television advertising represents a substantial growth opportunity that investors should not ignore.
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