Amazon.com has thrown a wrench into Netflix’s advertising plans.
Netflix is charging less for ads and embracing new offerings such as product placement, according to ad buyers, as the streaming company looks to keep expanding an ad business that faces growing competition.
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Amazon Has Upended the Streaming Ad Market, and Netflix Is Paying the Price
The streaming ad market was upended earlier this year when Amazon converted its entire Prime Video subscriber base to a new ad-supported version, giving customers a chance to switch back to ad-free streaming for an extra $2.99 a month.
Prime Video’s large ad-supported subscriber base means it has a significant amount of ad inventory that is affecting the negotiations that Netflix, YouTube, TV networks and other streamers are having with advertisers as they commit to buying billions of dollars in commercial time for the coming TV season—a process known as the “upfronts.”
The e-commerce company is driving down ad prices for everyone, analysts and ad buyers said.
“Earlier this year, a whale named Amazon Prime Video was introduced into the ctv pond,” the media analyst Michael Nathanson wrote in a report to investors Wednesday, referring to connected TV. “Nearly six months later, we are beginning to find out the impact of this disruption.”
Netflix is asking some brands to pay roughly $29 to $35 for reaching 1,000 viewers, according to advertisers and ad buyers, a significant decrease from the $39 to $45 that it charged some advertisers last summer.
Netflix’s reduced ad rates are closer to what Prime Video is looking to charge, according to ad buyers, who are pressuring Prime for even cheaper pricing.
Negotiations are ongoing, and pricing could change, ad buyers said. Advertisers pay different rates depending on the types of ads they are buying and how much ad time they purchase.
During its upfront negotiations, Netflix is offering larger premium-price ad packages that include allowing advertisers to integrate their products and services into certain programs, some of the advertisers said. These programs include a coming drama series about the world of bull riding featuring Tim McGraw, one of them said.
Netflix is also offering larger sponsorships of live events and in-person events tied to some of its programming, they said.
Brands have long salivated over the possibility of having their products and services integrated into programs running on Netflix. Since its inception, Netflix has done little paid product integration.
Ad executives say that advertising is even more effective when viewers see a product within a show and then see a commercial for that very product shortly afterward.
While Amazon doesn’t disclose subscriber numbers, it has said the ad-supported tier of Prime Video has an average reach of 115 million monthly viewers in the U.S. By contrast, Netflix told advertisers at its star-studded presentation last month in New York City that its ad tier reaches 40 million global monthly active users—a significant jump from the 23 million users the company disclosed in January.
“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.
Although Amazon has plenty of reach, ad buyers said Netflix programming is attractive because it tends to be more popular and often generates more buzz in the marketplace. Netflix consistently ranks as the second most watched streaming option behind Alphabet’s YouTube, according to Nielsen.
Netflix’s pitch for upfront ad dollars comes at an inopportune time.
Several ad-holding companies, which spend billions of ad dollars across different media players annually on behalf of their advertising clients, are currently competing to win Amazon’s lucrative ad-buying account. As part of that contest, many of the agencies might promise to commit to buying a significant amount of ad time from Amazon on behalf of their clients to curry favor during the pitch, according to ad buyers.
“There’s always an expectation in reviews like this that agencies will create a ‘most favored nation’ approach for their soon-to-be media client,” said Greg Paull, co-founder of R3, a consulting firm that helps match advertisers with agencies.
Amazon is one of the biggest advertisers in the world. It spent $20.3 billion on advertising and other promotional costs last year, according to the company’s annual report.
Write to Suzanne Vranica at Suzanne.Vranica@wsj.com
