Good afternoon!
The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
It has been an extraordinary two months for Amazon Prime Video.
In June, The Wall Street Journal reported that, after Amazon converted its entire Prime Video subscriber base to a new ad-supported version, it now offers “a significant amount of ad inventory that is affecting the negotiations that Netflix, YouTube, TV networks and other streamers at upfronts.”
Earlier this week, it announced improvements to the user experience for Amazon Prime Video. The service is now “an easy-to-navigate entertainment destination where they can discover new titles and enjoy favorites, as well as sign-up or switch add-on subscriptions with just a few clicks.”
Yesterday it became the first streaming service to land an exclusive NBA deal. The deal cost $1.8 billion, will start in the 2025-26 NBA season and will last over 11 years.
This is a surprising outcome for anyone looking at the U.S. TV marketplace through Nielsen’s The Gauge. Amazon Prime Video has consistently sat in a distant fourth place to YouTube and Netflix and just behind Disney’s Hulu. Its share of U.S. TV viewing is down 0.1% year-over-year.
Yet, YouTube's and Netflix's recent quarterly earnings reports revealed that Amazon’s glut of ad inventory was making a dent in their advertising revenues. All of these market signals suggest that Amazon has successfully blown up key, longstanding foundations of the media marketplace:
The “codependence” between legacy media cable and TV advertising sales teams and ad buyers;
The “walled gardens” of legacy media streaming services; and,
Sports streaming distribution.
Key Takeaway
It seems counterintuitive to ask why Amazon Prime Video—which captures only 3% of monthly viewing on TVs—is now in the position to be a "killer app". But, the inevitable choice for its competition in Nielsen's The Gauge will be whether to submit and allow Amazon to own the customer relationship.
Total words: 1,500
Total time reading: 6 minutes
Amazon & “Codependency”
In the ad marketplace, Amazon seems to have aimed at something former GroupM chief digital officer Rob Norman described as “codependency” back in 2021. He argued that advertisers and premium publishers (including TV networks) were struggling to negotiate the intersection of old (more content-driven) and new (more data-driven) advertising models.
Premium publishers and many advertisers had defaulted to a “co-dependent relationship” where ultimately relationships dictated where of ad buys took place. But, a mix of context and data should have dictated those outcomes, instead. This was best reflected in past eMarketer data that showed the linear market spending remained flat in total U.S. spend ($65 billion to $70 billion) between 2017 and 2022.
That figure has since dropped to $60 billion and eMarketer projects it will hit $54 billion in 2027. Meanwhile, data-driven connected TV spend was emerging then, and is projected to more than triple in the U.S. from $9 billion in 2020 to $30 billion in 2024, and to $42 billion in 2027.
The bet made by the likes of Amazon, Google, Netflix and linear media companies like Disney is that they can offer the optimal mix of content and data in connected TV. That is where the growth will be found. The models with the most scale (Amazon, Disney, Google) and/or engagement (Amazon, Google, Netflix) are best positioned to win.
Amazon at 2024 Upfronts
Demand for linear advertising inventory has been weak since the pandemic. Demand for broadcast inventory fell by 3% in 2023 and demand for cable fell by 7%. As The Information reported last month, advertiser spending in the overall upfront market is likely to be flat this year but “Amazon has a good chance of increasing its take by close to the 25% lift it has asked for.”
The “significant amount of ad inventory” it introduced also has put downward pressure on CPMs—Netflix is now reported to be charging ad rates 25% less than they were last summer, and Disney is charging 10% to 15% less. YouTube and Netflix are projected to fall short of their objectives for a share of upfronts.
Two key reasons for these market dynamics are that ad buyers are saying, first, “Amazon’s offering is more like a traditional TV service than what YouTube can offer, dominated by full-episode TV shows, movies and live sports.” Second, “the way ads are presented within Prime Video is similar to what advertisers have long been used to on traditional TV, with commercial breaks within episodes of TV shows, movies and live programming.”
The story seems to be that Amazon has identified that aspects of co-dependence still linger in the market—particularly a preference for familiar formats and advertising delivery—and built offerings that surgically reorient those dynamics in Amazon’s favor. In doing so, it has blown up everyone’s bullish expectations for the 2024 upfronts.
“Walled Gardens”
A feature of Amazon’s redesign of Prime Video also may have the most far-reaching consequences. Prime Video channels now offer a single login access to third-party apps like Max and Starz. CNET writes that “Prime Video aims to knock down a set of frustrating hurdles, giving you a streamlined path to the titles you want.” Third-party apps required those hurdles in order to capture valuable consumer data and operate independently from Amazon.
Consequently, there is a reduced need for the consumer to sign up for a third-party app outside of Amazon’s ecosystem. For subscribers, the only difference between watching a title from Amazon Prime Video’s library and a third-party app’s library will be one or two clicks. What will be the need to download the third-party app outside of Amazon when Prime Video is an "everything store" for content?
It also reflects the relative unimportance of the third-party app within the Amazon ecosystem. With over 200 million Amazon Prime subscribers worldwide, over 165 million subscribers in the U.S. alone, and over 200 million Fire TVs sold worldwide as of March 2023—and no evidence that the two are correlated—this is not insignificant.
This significant change to the user experience reflects something I wrote back in May: “The next generation of consumers value the user experience (UX) as much as the content.” It also reflects something I said to Deadline’s Katie Campione: The winning services are “products first, and walled gardens for content last”.
The interesting question is who ultimately will own the customer relationship. In the past, it was shared between Amazon and the app. But, now, it seems increasingly like Amazon increasingly will own the customer relationship. That seems dangerous for the future of apps like Max, which had at least 10% of its subscriber base from Amazon when it was HBO Max. It also has implications for programmatic advertising: Why buy from a publisher when you can target the consumer across Amazon?
Sports Streaming Distribution
Amazon now has two major sports distribution deals: NFL’s Thursday Night Football (TNF) and the NBA. In 2025, its annual spending on sports rights fees will triple from $1.27 billion to $4.7 billion.
According to Nielsen National TV Ratings (panel only), TNF on Prime Video averaged 11.86 million viewers per game during the 2023 season, marking an increase of +24% over the previous season (vs. 9.58 million). Also, for the first time, all 15 of TNF on Prime’s games won the night among total viewers against competing programming on broadcast and cable.
Amazon also has success on TNF with alternate broadcast feeds “Twitch-like announcers: YouTubers (“TNF with Dude Perfect”), a players-only stream (LeBron James and Maverick Carter's “The Shop” who comment with a Next Gen Stats feed), and a Spanish language feed. It is not yet clear that Amazon plans to take the same approach with NBA games, even though the model reflects Dallas Mavericks owner Mark Cuban advocacy for the NBA to create "aggregate audiences" across "four, five six streams".
The interesting question is how Amazon Prime Video channels’ new interface will impact Peacock and ESPN’s upcoming direct-to-consumer service. The NBA announced that all national NBA games will be available on broadly distributed streaming services. Peacock is currently available on Prime Video channels and the upcoming ESPN app will be available there, too. So Amazon’s interface update implies it will offer the optimal viewing experience for watching all sports for 165 million American Prime subscribers.
Not only that but ESPN's and Peacock's relationships with advertisers will be disrupted, too: third parties distributing ad-supported apps on Prime Video Channels may share a percentage of advertising inventory with Amazon. So, within Prime Video, Amazon also will be able to sell ad inventory of NBA broadcasts it is not distributing.
The "Killer App"
The Wall Street Journal article elegantly summed up the significance of Amazon’s reimagining of these three foundations of the broader media marketplace:
“Amazon in many ways is building the killer app,” said John Terrana, chief media officer at the ad firm VaynerMedia. It has “premium content, live sports, immense scale,” and advertisers can target ads to their customers and can often see if a viewer bought the product on the platform, he added.
In this light, it seems counterintuitive to ask why an app that captures only 3% of monthly viewing on TVs is in the position to be a "killer app". However, Amazon's platform already integrates all competing legacy apps ranking beneath it in The Gauge. It also captures their viewing time as part of Nielsen data (Nielsen does not appear to attribute views of third-party apps on platforms like Prime Video Channels except for AMC+ and Paramount+).
Amazon has blown up key foundations for the media conglomerate’s existence in the retail-first, consumer-first marketplace. The inevitable choice for its competition beneath Prime Video in the Nielsen ratings will be whether to submit and allow Amazon to own the customer relationship.