Amazon broke out its Advertising business from "Other" in its earnings release for Q4 2021 yesterday. At $31.2B it's an enormous business, as Axios' Sara Fischer highlighted this morning: it's one of the fastest growing advertising businesses in the world and now generates more annual advertising revenue than Microsoft, Snapchat and Twitter combined.
We had already known that advertising had made up a "majority" of the "Other" line item under Supplemental Financial Information and Business Metrics. This earnings release confirmed that "majority" averaged ~92% of its "Other" line item over the past eight quarters.
This was the first fiscal quarter the business had reached ~$10B, which seems to be the impetus for having broken it out as its own line item, according to CFO Brian Olsavsky on the earnings call:
You know, we have -- we've looked at the proportion of other revenue that is advertising services, and we got to a point where -- I had been pretty much mentioning every quarter that for the majority of that line item was advertising revenue, and we felt at a certain size that we should break it out and then split the other off of that. So, that was really the impetus for the change. And we look at those things every year, and end of the year was a good time to do it as we start 2022.
So, hopefully, that's helpful for you to understand the growth rate without having to impute it from the other revenue. The growth rate in the quarter 33% is down from 66% in Q4 of last year. Q4 last year obviously had Prime Day in it for the first time, and Prime Day had carried a lot. I can't scale it for you, but you know, there's a lot of advertising tied to Prime Day, obviously, so -- and that moves quarters.
Management also gave a sense of how they're thinking about the overlap between their growing ad business and their increasing focus on video advertising:
...the priorities with advertising are, you know, in a high level, it's improve the tool usability. We think there's, you know, great feedback loops with customers, as Brian mentioned, to keep building and making that better. You know, that results in building more relevancy and better engaging experiences. And again, you know, the more we can interact with the advertisers, the customers and learn and have more opportunities to hear from them and understand that we can build better analytic tools, provide better measurement, give them better insight to performance.
So, really focus on serving brands. And it's, you know, in the sponsored ad space, but, you know, we've talked about video advertising is certainly a great opportunity. And as we've got properties like, you know, Fire TV, IMDb TV, Twitch, live sports, a lot of exciting things that have been going on in live sports and certainly to come this year as well, both in the NFL here in the U.S., but overseas in a number of properties. Really excited to, you know, kind of work with folks.
As Amazon starts spending more on content across its various distribution channels (free, paid) and across various verticals (live sports, TV series, movies), it has an engine of $10B annual revenues to help recoup content costs.
In theory, this sounds great but its ability to generate audiences for live sports remains a big question heading into the first year of its 10-year deal with the NFL for Thursday Night Football.
Context: Peacock
Back in March 2021 I noted in Amazon, NBCU, The NFL, & Addressable Advertising:
A key question to play out from now through 2029 is how both Amazon and NBCU will sell advertisers with the buying rationales of both contextual and targeted advertising.
I concluded:
Ad targeting seems to be inevitably more important to the future of both linear and streaming broadcasts, and NBCU is positioning itself to meet advertiser demand for both streaming and linear inventory. The burden will be on their NBC One platform to prove to advertisers that ads can be served across platforms, with a greater burden to prove it can target linear ads nationally.
Whereas Amazon’s narrower, CTV/OTT streaming-focused value proposition means an advertiser will be able to buy CTV/OTT inventory elsewhere within the Amazon ecosystem, and not just a portfolio of different types of inventory.
It's worth revisiting this conclusion, briefly, in the context of Amazon's announcement and more importantly in the context of NBCU, Peacock and the 2022 Beijing Winter Olympics.
Because, beyond Peacock's disappointing 2021 (9MM paying subscribers and 7MM from bundled offerings on X1 and other pay-TV distributors), it now has to keep its advertisers happy with the performance of advertising during the Olympics.
It is doing so after having had to issue make-goods for the Tokyo Olympics, and "hav[ing] been dealt the worst hand imaginable" at the Beijing Winter Olympics, according to former Olympics prime-time host Bob Costas.
How much is keeping its advertisers happy a priority? AdWeek's Jason Lynch reports:
[NBC Sports ad sales chief Dan Lovinger] has been promoted to president, NBC advertising sales and partnerships, and will step into a new role focused solely on monetizing all of NBCUniversal’s Olympic and Paralympic interests. He’ll report directly to Linda Yaccarino, chairman, global advertising and partnerships, NBCUniversal.
This new position “is essential for our future,” Yaccarino wrote in a staff memo.
I read this in two ways.
1. Codependent Relationships
First, I read it through the lens of legacy media advertising being stuck in "codependent" relationships, as I wrote about recently in If Streaming Growth *Is* Slowing, What Will Advertisers Buy In CTV?
..."codependent" relationships matter more than sell-side economics, and in turn can overwhelm the economics of emerging, smaller-scale line items like CTV or digital media revenues at legacy media companies.
Meaning, Lovinger has promoted to manage advertiser relationships around an Olympics broadcast to which advertisers have been more cautious given the political issues.[1] There will be more projected audience consumption via streaming than during the 2021 Tokyo Olympics after NBCU decided to make all events available via Peacock.
In short, both Lovinger and Yaccarino seem to be treating the NBCU Olympics less as a showcase for NBC One ad-serving technology and Peacock, and more as relationship management of partnerships the United States Olympic and Paralympic Properties being "key to our success and need dedicated focus.”
NBCU's advertisers and partners don't seem happy.
2. NBCU 📉 while Amazon 📈
Second, it's worth considering this through the lens of my conclusion from March 2021, above. It's clear the Beijing Winter Olympics are a burden on NBCU to prove the targeting capabilities of the NBC One platform, and all signs suggest they are in all-hands-on-deck mode to put out fires related to that objective.
Targeting becomes harder when audiences don't tune in at scale, or have been proven to be less inclined to pay for and use the streaming service where the Olympics are constantly available.
That seems notable at a time when Amazon is building the foundation of a strong story for advertising, both around live sports and original series, while Peacock is struggling.
In other words, Q4 2021 may be when we witnessed ad buyers realize that relationships matter increasingly less, and the ability to deliver scale, reach and targeting matters most. Counterintuitively, it may be because of the longstanding ad revenues juggernaut The Olympics that this shift finally happens.
Amazon's "Other" Line Item & Creator Economy
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[1] Disclosure: I worked with Dan Lovinger at MTV Networks over 16 years ago, and we overlapped at Viacom through 2010, but I have not seen or spoken with him since then.