Commercials May Be Here To Stay On Streamers Like Amazon Unless You Open Your Wallet | CBC News

Business

Ad-free entertainment used to be one of the big selling points of streaming services, but as more services add commercials, experts say the glory days of advertisement-free video content are gone unless you spend enough money to make up for the loss in potential revenue.

Profit margins and revenues for ads on services like Prime Video and Netflix are high

Anis Heydari · CBC News

· Posted: Feb 02, 2024 4:00 AM EST | Last Updated: February 2

Amazon Prime Video will soon include ads in Canada unless subscribers pay an extra $2.99 per month. (Martin Bureau/AFP/Getty Images)Ad-free entertainment used to be one of the big selling points of streaming services, but as more services including Amazon’s Prime Video add commercials, experts say the glory days of advertisement-free video content are gone.

That is, unless you open up your wallet to higher prices and additional monthly charges to avoid the advertisements that used to be banished to the realm of traditional, linear television.

Prime Video is the latest to make this change in Canada, adding commercials on Monday unless customers pay an extra $2.99 per month.

While the base price isn’t changing if customers accept the ads, the previous advertisement-free version of the service is more expensive.

Amazon has promised the advertisements will be “limited” but when contacted by CBC News, would not confirm how many ads would be put into programs or their length.

U.S. consumers started seeing ads on their Prime Video service in late January. That move followed similar changes by Netflix and Disney+ across North America, and Bell Media’s Crave in Canada.

WATCH | More ads on streaming services:

Amazon Prime Video won’t be ad-free much longer, unless you pay moreAs of Monday, Amazon Prime Video will become the latest company to add commercials to its TV shows and movies — unless consumers are prepared to pay more.

Ads make lots of moneyIndustry players say the changing — and, often, plunging — financial realities for streaming companies may be to blame for these changes. While some services are not increasing the dollar value charged they are instead offering less.

“It’s very difficult in the streaming world to make money,” according to Bloomberg Intelligence media analyst Geetha Ranganathan, who says that “by far” Netflix is the only profitable streaming business.

“They’re getting more expensive because…  the unit economics of streaming is not as good as the old TV model.”

Back in August, Disney CEO Bob Iger said his company was deliberately pushing Disney+ clients toward the plans that include advertisements by making ad-free plans more expensive.

“We’re obviously trying with our pricing strategy to migrate more subs to the advertising-supported tier,” he said.

Netflix says its increased the number of subscribers in 2023, with 40 per cent of new subscribers opting for ads and a lower monthly fee. (Mario Tama/Getty Images)Money from advertisements is going up with other players too. YouTube advertising revenue shot up by more than $1 billion US in the fourth quarter of 2023, compared to the same quarter the year before. 

And Netflix recently reported millions of new customers, 40 per cent of whom opted for advertising-included plans. That company also said its revenue in the last three months of 2023 was up by 12 per cent, again compared to the year before. 

Ranganathan expects Amazon will want to encourage more customers to stick with the advertisements on its platform, because it can make a lot of money from commercials without having to invest a lot more. 

“You look at the majority of their business, which is really the e-commerce business …  the [profit] margins on that business are two per cent. The margins on advertising for Amazon is upwards of 50 per cent,” said Ranganathan.

Amazon already personalizes ads for its customers. While the company didn’t confirm whether ads in Prime Video will be targeted in the same way, advertising executive Mo Dezyanian says proper targeting will be part of what makes or breaks these types of commercials.

Ad executive Mo Dezyanian says he thinks well-targeted ads will do well with customers, even though people often dislike ads. (CBC)”People don’t like ads, but people really don’t like bad irrelevant advertising,” said Dezyanian, president of ad agency Empathy in Toronto.

Dezyanian joked that the “most-clicked ad on the internet is the skip button on YouTube,” but also says audiences can also be very receptive to commercials depending on timing and quality.

“If you give people the right ad at the right time, it’s actually a really good trade-off for folks. A great example is the Super Bowl. Nobody likes ads. but everybody watches the Super Bowl ads,” he said.

Cancel now or forever hold your peaceAs for customers who want to try to fight back? Now may be the time to do so, says one marketing and behavioural science expert.

“There is a chance now. If everybody gets super mad, maybe we could change it,” said David Hardisty, with the UBC Sauder School of Business in Vancouver.

Hardisty notes Netflix itself has backtracked due to consumer reaction in the past. Back in 2011 it divorced its DVD rental business from its online streaming business. The ensuing reaction — and drop in stock prices — had Netflix reverse the decision weeks later.

However, the window may be short to make that kind of a change when it comes to advertisements in streaming services. According to Hardisty, whether subscriber numbers and revenue rise or fall will be the deciding factor.

“Because this is a kind of new thing, these companies are going to be watching the metrics very closely. So this is kind of now is the time if you want to try to make a difference, vote with your dollars,” he said.

Geetha Ranganathan, a Bloomberg Intelligence media analyst, expects Amazon will encourage more customers to stick with the advertisements on its platform. (CBC)ABOUT THE AUTHOR

Anis Heydari is a senior business reporter at CBC News. Prior to that, he was on the founding team of CBC Radio’s “The Cost of Living” and has also reported for NPR’s “The Indicator from Planet Money.” He’s lived and worked in Edmonton, Edinburgh, southwestern Ontario and Toronto, and is currently based in Calgary. Email him at anis@cbc.ca.

Follow Anis on TwitterWith files from Shawn Benjamin and James Dunne

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