Netflix and Amazon: A Tale of Two Ad Tiers

One of the biggest developments among New Hollywood streaming services consists of the growth of advertising tiers, or ad-supported plans that cost less than ad-free options.

The growth of ad-supported tiers in streaming services has been significant, with many platforms seeing a large portion of their new subscribers opting for these cheaper, ad-based plans. This trend is driven by rising subscription costs, making ad-supported plans an appealing alternative for consumers looking to save money.

In 2024, the majority of new subscribers for several streaming platforms chose ad-supported plans. For instance, 74% of new Peacock subscribers chose the ad-supported tier, up from 70% in 2023, and 58% of new Disney+ subscribers opted for the ad-supported tier, a significant increase from earlier years.

In November 2022, Netflix announced the launch of its own ad-supported tier, and Amazon did the same for Prime Video in January 2024. Both companies have taken very different approaches that speak volumes to their content monetization strategies.

The Netflix Approach: Your Choice

When Netflix introduced its ad-supported tier two years ago, the company gave subscribers a choice: keep the current tier with no ads, or switch to the ad-supported tier and pay less. Stay with the existing plan or trade it in for a more affordable option. Since then, Netflix reports that its ad-supported tier reaches more than 70 million monthly active users globally, and over 50% of new members are opting for the ads plan where available.

Netflix expects its ad revenue to double in 2025, albeit from a relatively small base, and has already sold out its ad inventory for two Christmas Day NFL games set to air in 2024.

Amazon: Level Up or Pay Up

When Amazon launched ads on Prime Video in January 2024, it gave subscribers an unpleasant surprise: stick with the existing plan and experience ads or pay $2.99 more a month to go ad-free. This was especially contentious because Prime Video subscribers typically pay $139 per year for Amazon Prime, which includes access to Prime Video.

The change prompted user backlash. But so far, Amazon reports that customer churn has been lower than expected and that only about 15% of users have opted to pay the additional $2.99 per month for an ad-free experience. __Hub Entertainment Research found__no measurable impact on overall subscription rates after the ad rollout, and Prime Video’s share of U.S. streaming customers increased from 55% in Q4 2023 to 57% in Q1 2024.

Amazon recently decided to shut down the ad-supported Freevee channel and integrate ad-supported content directly into Prime Video rather than across multiple platforms. This reflects a competitive strategy to centralize efforts and focus investments, allowing Amazon to better compete with other streaming giants.

Which Approach Works: Netflix’s or Amazon’s?

One might conclude that it doesn’t matter whether you deliver a subpar user experience—people may tolerate being forced into a plan they did not ask for, similar to shoppers being directed to self-service lanes at retail stores. That might be true, but the bigger takeaway from Amazon’s perspective is the power of bundling services within the Prime membership. Prime Video subscribers are willing to tolerate some level of inconvenience because they are already invested in the broader Prime ecosystem.

Netflix needs to grow subscribers to please advertisers. For Amazon, the end game is different: drive Prime membership. Prime members spend more than non-Prime members. Amazon figures, What’s an additional $2.99 a month to members who are already accustomed to paying more to get all the perks that come with a Prime membership?

The Battleground for Netflix and Amazon: Live Sports

The real battleground for all ad-supported tiers, including Netflix and Amazon, focuses on live sports.

The live sports industry is the last bastion of linear TV viewing. But the world is changing fast. About half of U.S. audiences no longer pay for cable TV or other traditional pay TV services, according to Insider Intelligence. About four out of 10 viewers mainly consume sports content through ad-supported CTV platforms or social media, according to Trade Desk’s Future of TV Report.

Streaming services have been gobbling up live sports content over the past few years, ranging from Amazon’s and Peacock’s deals to stream NFL games to Netflix acquiring rights for the WWE. And competition is heating up.

Netflix is a relative newcomer to live sports but is catching up quickly, as shown in its NFL Christmas Day broadcasts. But the company is making strides. Only a few months after Netflix dipped its toes into live sports, the company signed a $5 billion deal to become the exclusive home of WWE’s Raw from January 2025 onward in the U.S., Canada, U.K. and Latin America. This means the WWE’s flagship show will leave traditional television for the first time in 31 years.

Amazon, meanwhile, is flexing its retail and advertising strength by combining live sports with shoppable ads during NFL’s Thursday Night Football and Black Friday game that Amazon launched in 2023.

On November 29, Amazon will stream its second annual Black Friday game featuring Super Bowl Champion Kansas City Chiefs against the Las Vegas Raiders. Beginning in 2025, Amazon will also stream NBA games on Black Friday, creating an NFL-NBA doubleheader.

A Black Friday game in either the NFL or NBA is a particularly interesting gamble. Amazon’s inaugural Black Friday NFL game was not exactly a ratings bonanza on the biggest shopping day of the year. As the ratings for the 2023 game shows, there’s no guarantee a game will be engaging enough to hold viewers’ attention especially on a day when pro football and basketball have been traditionally absent.

Still, Amazon is betting on success by integrating shoppable TV, enabling viewers to make purchases right from their screens. By merging entertainment and ecommerce, Amazon will offer exclusive deals on items like NFL gear during the games. This feature is designed to enhance the shopping experience, catering to viewers who are already hunting for deals.

Additionally, the NFL will gain exposure to Prime’s 200 million global subscribers, along with corporate sponsors who opt to advertise during the broadcasts.

But it’s not just about shopping. Amazon is using AI to create a richer, more interactive viewing experience. Its Prime Vision stream showcases advanced statistics and analytics powered by Next Gen Stats, allowing fans to access real-time player data and game strategies. This makes the broadcast more dynamic and engaging for sports fans.

Netflix or Amazon? Considerations for Advertisers

Of course, advertisers need to consider myriad factors when choosing any streaming platform, including costs, ad formats, and desired audiences. Here are some additional considerations to keep in mind based on Netflix’s and Amazon’s approaches to their ad tiers.

Experiment with Contextual and Interactive Ads in Sports Content

With live sports emerging as a key battleground, advertisers should tap into opportunities for shoppable, contextual, or interactive ads on platforms that feature sports. Amazon’s integration of shoppable ads in NFL games shows the potential for highly engaging ad formats in sports content, appealing to viewers who expect action and interaction.

Assess Long-Term Brand Impact of Forced Ads

The backlash Amazon faced suggests that a forced ad experience, without clear user choice, can erode brand perception. In the shor tun, advertisers should carefully weigh the potential benefits of reaching Prime Video’s vast audience against the potential for negative brand associations. For certain brands, aligning with Netflix’s user-friendly model may better protect brand sentiment. But in time, audiences will grow accustomed Amazon’s approach, and audiences won’t remember the initial user backlash.

Align with Audience Expectations on Each Platform

Since Amazon relies on its Prime bundle to retain viewers, advertisers could use it to reach a broader, more commercially engaged audience. However, this audience might be more tolerant of product-centered ads rather than disruptive or intrusive formats. Tailoring ad formats to match each platform's distinct user expectations will enhance brand effectiveness and avoid alienating viewers.

Adapt to Consolidation in Streaming and Build Agile Campaigns

With Amazon and other companies consolidating ad-supported content within a single platform, advertisers should remain agile, adapting campaigns quickly as platform strategies shift. Having flexible, cross-platform campaigns allows advertisers to reach users effectively, regardless of changes in streaming service structures.

Amazon and Netflix are only two players (albeit big ones) in an increasingly crowded sea of streaming companies. The above recommendations, though, give you a sense of some of the factors involved in navigating different platforms with their own approaches.