Streaming Services Struggle to Land Favorable Ad Deals as Market Explodes

Photo from Nicolas J Leclercq via Unsplash

Streaming Services Struggle to Land Favorable Ad Deals as Market Explodes

By Movieguide® Contributor

With ad-tiers becoming the norm across all streaming services within the past year, distributors are now struggling to sell advertisement slots at favorable rates as demand far outpaces supply.

The explosion of ad-supported viewing on streaming services has led to a massive spike in demand for ads while leaving the supply roughly the same. As a result, the going rate for ads – measured in CPM, the cost to reach 1,000 users – has dropped by double-digit percentage points as advertisers look to get more bang for their buck in an environment where they hold the cards.

The most disruptive force in the market has been Prime Video, which introduced ads this February. The site’s excellent consumer-targeting ability, as well as a lower CPM rate, has created a massive change within the overall market.

“Amazon has one of the broadest audiences reaches of all of the streaming services,” Macquarie analyst Tim Nollen told Yahoo Finance in February. “They have the reach, they have the consumer data. There will likely be an acceleration toward retail media spending, which could encourage everybody else to do more shop-able advertising.”

“It just raises the stakes,” Nollen continued. “Everybody now faces another competitor and a very large supply of inventory that they’re going to be competing for. It’ll drive more demand, or better tools to get better pricing on ads through better targeting or better us of programmatic advertising.”

“The introduction of ads to Amazon Prime Video – where the ad-tier is now the default option – has led to an explosion in CTV ad inventory, exerting deflationary pressure on CPM across the sector,” added media analyst Michael Nathanson in a recent research note. “Platforms with the most inventory, least must-have content, and worst targeting capabilities are most at risk.”

The struggle to land acceptable rates with advertisers places some services under existential threat as ad-supported viewing has served to generate impressive revenue, helping struggling streaming platforms turn profitable. A downturn in ad revenue could serve as the final nail in the coffin, causing some platforms to finally shutter or be sold off.

Movieguide® previously reported:

As January comes to a close, Amazon Prime Video becomes the final major streaming service to incorporate ads onto its platform, as it expects to add up to $3 billion a year through commercials.

Starting on January 29th, Prime Video users will now get ads while watching TV shows and movies unless they pay an additional $2.99 per month on top of their Prime subscription. Though the platform promises to feature “meaningfully fewer ads than linear TV and other streaming TV providers,” this new addition will lead to incredible profits for the company.

Morgan Stanley predicts the company will generate $3.3 billion in Prime Video ad revenue during 2024, rising to $5.2 billion in 2025 and a staggering $7.1 billion in 2026. Analysts from MoffettNathanson are less optimistic, forecasting $1.3 billion for 2024 and $2.3 billion for the following year. Either way, Amazon will take a lion’s share of profit through this simple change.

“This Monday, we are going to find out what happens to an advertising market when a brand-new entrant with excess capacity, unrivaled first-party data advantages and massive unduplicated reach decides to put a ‘for sale’ sign in its windows,” said MoffettNathanson analyst Michael Morton.

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