Amazon’s alternative approach to ad-supported SVOD
Why Amazon’s opt-out approach to ad-supported SVOD will trump Netflix & Disney’s opt-in strategy
Netflix’s Q3 2023 results are in and they’re better than expected. 9 million paid memberships added and a cool $8.5m in revenue, up 8% year-on-year.
Its content pipeline appears unaffected by the writers and actors strikes and its carrot-and-stick drive to get account sharers to pony up for their own subscription appears to be working.
The one sober note in Netflix’s letter to shareholders concerns the adoption of its ads plan, with an admission of “more work to do to scale this business”.
It’s almost a year since Netflix rolled out its ads plan, which promised better economics than the ad-free plan. However, only 30% of sign ups in supported territories are to the ads plan.
One response evident in the letter to shareholders is increasing the price gap between the ads plan and the entry-level ad-free plan. The cost of Netflix’s basic plan (which is only available to existing subscribers) is going up by $2/£1 pm, whilst premium subscribers will need to find an extra $3/£2 pm.
Another is improving the functionality of the ad-free plan (downloads are due to be added next month).
Disney appears to be adopting a similar approach. Last week it increased the price of its ad-free plan in the US by $3 and the introduction of a £4.99 ad-supported tier in the UK next month will be accompanied by a new premium tier costing £3 pm more than the £7.99 standard plan.
Amazon is taking a different approach.
Last month it announced it would be rolling out ads to all users of its Prime Video service in nine major territories next year.
Amazon doesn’t publicly disclose user figures for the Video component of its Prime service, however estimates put global monthly users at around the 200 million mark.
When it rolls out in the US, UK, Canada & Germany early next year, Amazon will, at a stroke, have the biggest ad-supported SVOD service (extrapolating from the 5 million figure it disclosed in May, Netflix will likely have somewhere in the region of 10-15 million monthly ads plan users by Q1 2024. Disney+, which has been slower to rollout its ads plan beyond the US, will have less).
Prime subscribers who don’t want ads will be invited to pay an extra $2.99 pm (UK pricing TBA), which will all be gravy to Amazon; no subscribers cycling down to a cheaper ad tier, only subscribers cycling up to a more expensive ad-free tier.
To be fair, it’s a strategy Netflix and Disney would have struggled to adopt as user acceptance of ads suddenly being imposed on a pure-play SVOD service would likely be much lower than for Amazon Prime, where video is just one of a number of member benefits.
Still, it’s a reminder of the power of asking users to opt-out of, rather than opt-in to your preferred business model.
It will be interesting to see what approach Apple adopts when it introduces ads to Apple TV+.