Will Rogers once said that advertising is the art of convincing people to spend money they don't have for something they don't need.
Fans of "The Boys" might disagree. They're just loving the Amazon (AMZN) Prime series about a gang of corrupt superheroes, which was the No. 1 streaming show for the week ending Aug. 4
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The show's fourth season is now Prime Video’s fourth most-viewed TV season of all time, Variety reported, coming in behind “Lord of the Rings: The Rings of Power” Season 1, "Fallout" Season 1 and "Reacher" Season 2. "The Boys" has been renewed for a fifth and final season.
"Our storytelling is resonating with our hundreds of millions of monthly viewers worldwide," Andrew Jassy, Amazon’s president and CEO, told analysts during the company’s second-quarter earnings call on Aug. 1.
"When combined with our original films and shows, partnered streaming services, licensed content, and rent or buy titles, Prime Video continues to evolve into the best destination for streaming video," Jassy said.
Amazon Prime
Amazon CEO sees 'exciting opportunity' in Prime
A survey of 1,100 Amazon Prime members by Evercore ISI found that 61% of respondents picking from multiple options chose Prime Video as among the main reasons they subscribe, while 73% chose the shipping benefit, IndiWire reported in June.
In the prior three years of the survey, free shipping hovered above 80%, while Prime Video sat at around 45%.
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That kind of popularity translates into plenty of eyeballs, along with potential customers for advertisers.
“With ads and Prime Video, the exciting opportunity for brands is the ability to directly connect advertising that has traditionally been focused on driving awareness, as is the case for TV, to a business outcome like product sales or subscription sign-ups," Jassy said.
"We're able to do that through our measurement and ad tech, so brands can continually improve the relevance and performance of their ads."
While ads have become a norm on streaming video, Jassy said, Amazon aims "to have meaningfully fewer ads than linear TV and other streaming-TV providers."
Amazon, which rolled out advertisements in Prime Video content for U.S. customers on Jan. 29, offers ad-free viewing for $2.99 a month.
Brian Olsavsky, chief financial officer, said "advertising remains an important contributor to profitability in the North America and international segments."
"And we saw strong growth on an increasingly larger revenue base this quarter," he said. "We continue to see opportunities to further expand our offering in areas that are driving growth today like sponsored products, as well as newer areas like Prime Video ads."
Jassy noted that "sponsored ads drive the majority of our advertising revenue today, and we see further opportunity there."
Analysts see potential in advertising
In May, Amazon made its first appearance at the upfronts, a gathering held by television network executives and attended by major advertisers and the media, where marketers can buy commercial airtime several months before the TV season begins.
"We're encouraged by the agency and advertiser feedback on the differentiated value we offer across our content, reach, signals and ad tech," Jassy said.
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Bank of America Securities analysts said Prime Video could generate an incremental $2 billion in advertising revenue in 2024.
Meanwhile, Macquarie analysts said Netflix (NFLX) recently closed its upfront, claiming 150% upside in committed ad spending in its second upfront but few other details.
Other sources mentioned a $29 CPM, below Netflix's $39-$45 range last year, on its current base of 40 million monthly users, the Macquarie report says.
CPMs, or cost per thousand, is a metric and price model used in digital advertising that refers to the average cost a company pays for 1,000 advertisement impressions. The metric can help companies measure how efficient their advertising efforts are.
Macquarie said that Amazon put ads across all its Prime content "in one fell swoop earlier this year," flooding the connected-TV market with ad supply and offering CPMs in its first upfront as low as $20-$25.
"Prime has 115 million ads-supported monthly viewers in the US," the analysts said. "While the oversupply of ads weighs on pricing, we expect it to lead to more demand and for biddable programmatic ad tech services from the likes of Trade Desk, Magnite and Pubmatic, as publishers seek to fill ad slots at higher prices."
JMP Securities boosted its price target on Amazon to $265 from $245 while keeping an outperform rating on the shares.
JMP says its higher-than-consensus advertising estimates are reasonable given Amazon's vertically integrated ad platform.
The investment firm estimates Amazon will generate just under $2 billion in revenue from Prime Video in 2024, leaving it ample room to increase ad load and CPMs over time as viewing hours increase, due in part to licensing agreements for live sports.
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