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How Fire TV became a money maker for Amazon

It's on fire

Welcome to Lowpass, a newsletter about the future of entertainment and the next big hardware platforms, including smart TVs, ambient computing and AR / VR. This week: The story behind Amazon’s Fire TV ads business, and Roku’s shift away from scripted originals.

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How Fire TV became a money maker for Amazon

Advertising has become big business for Amazon, thanks in part to Fire TV: The ecommerce giant revealed last week that it had generated more than $12 billion in advertising revenue in Q3. Advertising revenue grew 26% year-over-year, and Amazon now makes more money with ads and advertising services than with subscription fees for Prime and other paid services.

Amazon doesn’t break out how exactly it generates those ad dollars, and traditionally, the bulk of its ad revenue has come from fees Amazon charges sellers for sponsored listings on Amazon.com. However, Amazon is also doubling down on TV and video advertising, and its Fire TV platform is playing a major role in putting those ads in front of viewers.

I recently had a chance to chat with Amazon’s director of Fire TV advertising, monetization and engagement Charlotte Maines about the company’s efforts to monetize Fire TV with ads, which also include a bunch of new ad formats announced this week. Maines wasn’t able to tell me exactly how much money Amazon is making with ads on Fire TV, but she suggested that Amazon’s continued commitment to the platform can be seen as an indicator that it’s working for the company. 

“Any of the things that work for customers and that you see us investing in, you can assume that they continue to grow in meaning and import to the overall business,” Maines said.

Amazon launched Fire TV close to a decade ago. The first Fire TV set-top-box, unveiled in April of 2014 and priced $100, was positioned as both a streaming device and a lightweight game console, and came with an optional game controller accessory. Chatter in the industry at the time suggested that sales were sluggish at first, and Maines acknowledged during our conversation that it was a challenge to convince people that they needed a streaming device at all.

  • All of that changed when Amazon introduced the $39 Fire TV stick later that year. “When we launched the stick and we saw how many we sold, and we sold a lot, I (thought): This is going to work,” Maines told me.

  • Amazon has released a bunch of different Fire TV devices since, including sticks, the more powerful Fire TV Cube, and smart TVs running the Fire TV operating system. The company has even begun to bring Fire TV to some devices you wouldn’t traditionally call a TV, including the Echo Show 15, and in-car entertainment systems.

  • All of this has resulted in a lot of recent growth for the platform: Amazon said at CES in 2022 that it had shipped more than 150 million Fire TV devices worldwide. 14 months later, that number had grown to 200 million units.

  • “We’re growing in almost every country in the world,” Maines said.

  • Some of that growth can likely be attributed to an acceleration in cord cutting and a massive shift towards streaming that began with the pandemic. But it’s also worth noting that Amazon was able to expand its presence in the TV market, thanks to new partnerships with major manufacturers like TCL and Hisense.

  • Amazon had effectively been locked out of much of that market due to a longstanding dispute with Google, which the two companies quietly resolved last year.

Ad-supported viewing is growing on Fire TV, thanks in part to free, ad-supported streaming channels, aka FAST Channels. Fire TV has been offering these linear channels for some time, but the platform integrated all of them in a dedicated Fire TV Channels app and experience earlier this year.

  • The audience of these FAST channels has grown by 788 percent since the beginning of this year, according to Maines, while hours viewed have grown by 285 percent.

  • Maines also argued that advertisers can reach viewers on Fire TV that they can’t reach anywhere else. “Fire TV’s audience only shares a 23 percent overlap with Samsung, a 10 percent overlap with LG, and an 8 percent overlap with Roku among viewers 18 and older,” she said, referencing Nielsen data.

  • TV platform operators all like to boast over these kinds of “unduplicated audiences,” but the point here is: It’s hard to compete with you if you own the biggest screen in the home.

Now, Fire TV is getting new ad formats. Amazon announced a bunch of new ways for advertisers to reach Fire TV owners this week that should help further grow the platform’s revenue.

  • These include context-relevant search ads. Amazon announced a new, AI-powered search experience for Fire TVs earlier this fall. “You can ask Alexa: Play the TV show with the guy who plays the lawyer from ‘Breaking Bad,’” said Maines. And now, advertisers who happen to have shows or movies featuring Bob Odenkirk on their service can run relevant ad tiles against that search.

  • Amazon is also starting to display context-relevant ads when consumers are browsing the Fire TV catalog, among other things.

  • And finally, Amazon is giving more advertisers access to the big featured banner at the top of the Fire TV home screen. Those ad placements were previously reserved to streaming services and other entertainment customers. Now, non-entertainment brands can also advertise using what Maines called the Cadillac of ad spots. “It’s definitely our highest-impact native ad placement,” she said.

Brands will love this – but will consumers? A huge ad for an airline or earbuds may not be the first thing everyone wants to see when they turn on their TV, and there has been backlash against overly aggressive advertising on smart TVs in the past. Asked about this risk, Maines told me that she and her team were monitoring consumer engagement and sentiment every day. “If you do not enjoy using your Fire TV, you will stop using it,” Maines said. “Then I don’t have an opportunity for advertisers, because I don’t have a user.”

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Roku downplays the value of scripted originals

Remember all those rumors two years ago about Roku looking to buy a movie studio? Those were the days … even if it may just have been studios looking to gin up interest with other buyers.

This week, Roku executives made it clear that original content really isn’t all that important to the company’s business, and that there is little appetite to spend an arm and a leg on scripted content.

  • In its Q3 letter to investors, the company stressed that “the foundation of (its) content spend remains third-party licensed content.” 

  • Roku did call out some originals, including a holiday special starring Demi Lovato and an upcoming second season of “Morimoto’s Sushi Master.” 

  • Missing from those shout outs: Any scripted originals. 

  • That was apparently no accident. “Roku Originals create content exclusivity that both advertisers and viewers value, particularly in non-scripted programming,” the letter stated (emphasis added).

  • Roku recently got rid of a bunch of the scripted originals it acquired as part of the Quibi library, including shows like Reno 911 and Dummy featuring Anna Kendrick.

Foregoing expensive scripted originals does make sense for Roku, which is still selling its devices below cost to grow its audience size: The company reported Q3 revenue of $912 million and losses of $350 million this week. Its customers streamed 26.7 billion hours of content during the quarter; the company now has 75.8 million active accounts.

What else

Disney is buying the rest of Hulu. The company is expected to pay Comcast $8.61 billion for its stake in the streaming service.

Apple Music’s Siri-only plan is no more. The Apple Music Voice Plan, which only let subscribers request music via Siri, has been removed from Apple’s website.

Twitch is doing away with its Nintendo Switch app. Kudos to The Verge for running this story under the headline Twitch ditches Switch.

Netflix’s ad-supported plan now has 15 million monthly users. One year after launching ads, Netflix is adding the ability to download shows to the plan.

Things are not normal. An interesting report from the BBC’s R&D department about the state of the world, the future of tech and the impact of AI, among other things.

A Bain Capital exec just became Magic Leap’s new CEO, replacing Peggy Johnson. That’s probably not a good sign for the future of the company?

YouTube is doubling down on banning ad blockers. Viewers from around the world are now being told that they have to either turn off their ad blockers, or “allowlist” the video service, to keep watching videos.

That’s it

Okay, confession time: I’m a Halloween procrastinator. Love the holiday, just never get around to plan for it. I buy the candy on time, but everything else tends to come together last minute, including my costume.

That’s why I’m in awe of the work that Google WebXR developer Brandon Jones put into his Halloween decorations. Jones cleverly combined a couple of pumpkins, a projector and some pre-made animations to have the pumpkins come alive on his porch. Impressive!

And unlike me, Jones is already thinking about next year, writing on Mastodon: “I want to try setting up a realtime render version of the same effect (WebGPU, naturally!) so that I can puppeteer them. I saw several little kids trying to talk to the pumpkins this year, and it would be a lot of fun if they could talk back!”

That does sound awesome. Just please don’t tell my kids about it, okay?

Thanks for reading, have a great weekend! And many thanks to this week’s sponsor, Quality Produce.

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