Video Ads: A Billion-Dollar Idea
Talking about streaming, Prime Video was once my go-to platform for binge-watching my favorite shows and movies. But lately, the ad experience has completely disrupted the joy of streaming, leaving me frustrated and disengaged. What started as a minor inconvenience has now become a dealbreaker, making me question the balance between user satisfaction and business growth.
So, why’re these ads so important for the business?
When a business achieves strong product-market fit, the next logical step is to diversify revenue streams, and this is where advertising becomes crucial. For instance, platforms like Netflix and Amazon Prime initially focused on creating “sticky” products that keep users engaged. Once they achieved this, they turned to ads to fuel further growth. Here’s how ads contribute:
• Revenue Diversification: Moving beyond subscription-based revenue, introducing ads creates an additional income stream, making the business less dependent on subscriptions alone.
• Expanding Audience Reach: Ads allow platforms to lower subscription costs, making services accessible to more price-sensitive users. This approach boosts adoption, especially since these platforms have already mastered churn reduction through their sticky algorithms that ensure user retention.
• Enhanced Profit Margin per User: Netflix, for example, reported that its ad-supported tier generates a higher average revenue per user (ARPU) than some of its ad-free plans, highlighting the profitability of ads.
And how much money does ads makes?
For example, since Netflix’s ad-supported tier has been there for some time now, we can take its example to showcase how Netflix earns more than 1 billion from ads alone:
Ad-Supported Tier Stats
• Ad-Supported Users: 16.75 million
• Daily Watching Time: 2 hours per user
• Ads per Viewing Session: 6 ads (2 segments × 3 ads each)
• CPM (Cost Per Thousand Ads): $35
Ads Revenue Calculation
1. Daily Ads:
16.75 million users × 6 ads = 100.5 million ads/day
2. Annual Ads:
100.5 million ads/day × 365 days = 36,682 million ads/year
3. Total Ads Revenue:
36,682 million ads × ($35 ÷ 1,000) = $1.28 billion/year
Subscription Revenue
1. Monthly Revenue:
16.75 million users × $6.99/month = $117 million/month
2. Annual Revenue:
$117 million/month × 12 months = $1.4 billion/year
Ad revenue is generating nearly as much revenue as subscriptions. From a business perspective, this makes the ad-supported tier an incredibly smart investment for Netflix.
Personally, I enjoy watching ads — if they’re relevant and don’t ruin my viewing experience. Well-placed, thoughtfully curated ads can even add value by introducing new products or services. But let’s be real — poorly implemented ads can completely wreck the experience, making the content feel disjointed and frustrating. Here comes Prime Video →
Prime Video ads experience
- Ad Placement: Each movie or series contains 6 minutes of ads for every 40 minutes of watch time, divided as follows:
Where does it fall short?
User Perspective: Why It Feels Frustrating
1. Non-Relevant & Recurring Ads: The ads are often irrelevant to my interests, making them feel intrusive and disconnected from the experience.
2. Interruptions During Exploration: Ads play even when I am casually exploring content. This disrupts the discovery process, preventing me from figuring out what I want to watch.
3. Flow Disruption: Mid-content ads interrupt the narrative, causing me to disengage. Usually, I mute the audio, then I check my emails or scroll Instagram or TikTok. Sometimes I forget about the mute content altogether.
Business Perspective: The Long-Term Impact
From a business perspective, poorly executed ads can have significant repercussions: users fail to engage meaningfully with the platform, and they’re less likely to develop long-term habits. I think ads experience needs to be carefully thought out rather than just adding “x” ads in the between the content to solve the monetization problem.
