A Prime Video ad tier could bring in $4.8 billion a year in revenue for Amazon, according to Morgan Stanley analysts. Here's how.
broke the news that Amazon was"planning to launch an advertising-supported tier of its Prime Video streaming service as it looks to further build its ad business and generate more revenue from entertainment." Amazon declined to comment.
Using that scenario as the basis for its model, Morgan Stanley analysts estimated in a note distributed Sunday that in 2025, a Prime Video US ad tier could bring in ~$4.8 billion in revenue and ~$2.4 billion in EBIT, a measure of a company's profit."We size US Prime subscribers at ~95 million in 2025, and our
"We look to premium video CPMs as a comp for how Amazon could price their US Prime Video ads, with ad prices for US YouTube in the mid $40 range. We take a discount to this and use a $30 CPM as we think it will take time for Amazon to refine its ad product/prove the value to advertisers.""We think Prime Video advertising will be a high incremental margin revenue stream."The analysts noted, however, that there were several big unknowns to consider.
Second, the margins could take a hit if Amazon uses the revenue from the ad-supported tier to invest more in expensive content. For instance, the analysts point to 2025 NBA rights.
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