Dive Brief:

• Amazon advertising services grew revenue 20% year over year in Q2 to $12.77 billion, a deceleration in the rate of growth from prior quarters, according to an earnings statement. The results came in under investor expectations. 
• The company at the start of the year introduced commercials to Prime Video and, in May, hosted its first upfront event pitching marketers for bigger TV ad budgets. Upfront deals can take time to realize, and executives emphasized that Amazon is only at the start of its video monetization journey.     
• Amazon still generates the bulk of its ad revenue from sponsored product formats, but the retail media category it operates in has grown more competitive and mature. Forecasts indicate retail media’s rate of growth could cool next year as marketers’ trade budgets begin to be exhausted.   

Dive Insight:

Amazon’s rollout of ads in Prime Video is part of a larger trend that has seen two of advertising’s fastest-growing channels, retail media and connected TV, begin to converge. However, building a video advertising empire will take time, and the e-commerce giant showed a rare bit of weakness on the ad sales front in Q2. The question is whether Amazon’s bread-and-butter ad formats, like sponsored product placements that surface as consumers browse its marketplace, can keep up momentum as the Prime Video pieces fall into place. 

Amazon’s earnings report overall disappointed investors, missing revenue expectations and offering so-so guidance for Q3. Amazon forecasts sales growth between 8% to 11% for the current period. 

Retail media networks have been on a tear since the pandemic, with Amazon the largest among them by a wide margin. Advertisers, particularly those in packaged goods, have spent heavily on the channel as they contend with signal loss and value the ability to target campaigns using retailers’ troves of first-party shopper data. But the category could be set for a cooldown: Global ad spending on retail media will increase 10.6% next year after growing 13.7% in 2024, according to WARC. The researcher said the dip will come “as trade marketing budgets are steadily exhausted.”

Video is a promising opportunity for retail media networks that have the financial resources and tech know-how to crack into more premium, upper-funnel advertising. Prime Video carries the type of programming that tends to be a magnet for ad dollars, including live sports. The streamer wields the rights to NFL “Thursday Night Football” and recently struck a deal with the NBA to carry a package of pro basketball games as part of an 11-year agreement that kicks off in 2025.

Amazon’s vision is to keep brands locked into its ecosystem, running TV campaigns that can be tied directly to e-commerce sales, with results tracked and measured by Amazon technology. Amazon has also promised to keep ad loads lighter than those on streaming competitors and linear TV so as not to put off viewers (who have nevertheless complained about the Prime Video changes).

“With ads and Prime Video, the exciting opportunity for brands is the ability to directly connect advertising that’s traditionally been focused on driving awareness, as is the case for TV, to a business outcome, like product sales or subscription signups,” said Amazon CEO Andy Jassy on a call discussing the Q2 results with investors. “We’re able to do that through our measurement and ad tech, so brands can continually improve the relevance and performance of their ads.”