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Wednesday, November 6, 2024

Streaming Wars: Are Subscribers Finally Paying the Price?

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Streaming’s Pricey Paradise: How Media Companies Are Raising Costs While Keeping Viewers Hooked

Streaming services are finally turning a profit, but it’s coming at a cost. Consumers are experiencing higher subscription fees and more frequent price increases, a stark contrast to the initial era of low-cost entry and aggressive subscriber acquisition. While media giants like Disney, Warner Bros. Discovery, and Paramount are celebrating profitability, are they pushing viewers too far?

Key Takeaways:

  • Profit over growth: The initial focus on subscriber growth at low prices has shifted. Companies are prioritizing profitability, leading to significant price hikes across platforms.
  • Ad-supported options: Streamers are increasingly pushing ad-supported tiers, often cheaper than commercial-free options. This strategy aims to both attract new budget-conscious consumers and secure more ad revenue.
  • Bundling for savings: To counter rising costs and attract customers with diverse content needs, services are offering bundled packages that combine multiple platforms at a discount, potentially making streaming more competitive with traditional cable.
  • Curbing password sharing: Streamers are cracking down on password sharing, aiming to translate shared accounts into paying subscribers.

Climbing Prices: The New Reality of Streaming

The streaming landscape has been rocked by a wave of price increases in recent months. In the past five months alone, Warner Bros. Discovery’s Max, Comcast’s Peacock, Disney, and Paramount have all announced price hikes.

Disney, notably, announced a $1-$2 per month increase across its streaming services: Disney+, Hulu, and ESPN+. CEO Bob Iger justified the move by highlighting the company’s creative contributions and product improvements, claiming that the price increases are justified by the value they deliver.

Paramount, meanwhile, achieved profitability for its flagship streaming service Paramount+ in part due to price increases implemented in 2023. The company expects further revenue growth from recently announced price hikes going into effect this month.

Comcast’s Peacock saw a second price increase this year, raising its ad-supported tier by $2. Warner Bros. Discovery, too, bumped up the price of its ad-free Max streaming service by $1 per month in June.

"For a decade in streaming, an enormously valuable amount of quality content has been given away well below fair market value," said Warner Bros. Discovery finance chief Gunnar Wiedenfels. "We’ve seen price increases across essentially the entire competitive set."

The burden of revenue growth increasingly falls on consumers, who are feeling the strain. A survey by Hub Entertainment Research found that 90% of consumers agree that streaming video subscriptions are raising their prices more often than they were in the past.

Ad Support: A Cheaper Alternative

While prices climb for ad-free tiers, streaming services are actively promoting ad-supported plans as a more affordable option. This approach, though not new, is becoming increasingly prevalent as companies seek to attract advertisers and reach a wider audience.

Warner Bros. Discovery’s Max’s ad-lite tier, for example, accounted for over 40% of global subscriber additions in the last quarter. The company reported a year-over-year doubling of streaming ad revenue in its second-quarter earnings call.

Paramount, too, experienced a 16% increase in advertising revenue thanks to its ad-supported offerings on Paramount+ and Pluto TV. At Peacock, 75% of subscribers are on the ad-supported tier, making it the highest percentage among major streaming services.

"The advertising tier for all these companies is appealing because they can make as much off of ad revenues as they make off of the subscription fee on the ad tier," says Tim Nollen, senior media tech analyst at Macquarie.

Even Netflix, which was initially hesitant to adopt ads, launched an ad-supported plan in 2022 following a slowdown in subscriber growth. The company recently eliminated its cheapest ad-free basic plan, leaving consumers to choose between the ad-supported option and two pricier ad-free tiers.

"The ad tier makes Netflix more accessible to users due to the low entry price," says Netflix co-CEO Ted Sarandos.

Despite the prevalence of ad-supported options, they are not immune to price increases. Disney+, for instance, is raising prices for its ad-supported tier.

"Until there’s a mass exodus of users, Disney (and others) will continue to increase prices," says Mike Proulx, vice president and research director at Forrester.

Keeping Subscribers: Strategies for the Future

While subscription costs are on the rise, consumers are still generally reluctant to give up access to their desired content. This loyalty gives streamers a competitive advantage, but it also highlights the crucial role of content in maintaining subscriber bases.

The challenge for streamers is to balance cost increases with subscriber retention. To this end, providers are employing strategies such as bundling and curbing password sharing.

Bundling offers a way to address the rising cost of streaming and appeal to viewers who consume content across multiple platforms. Disney, Paramount, and Warner Bros. Discovery have all introduced bundled subscription options that combine their services at a discounted price.

"The new world of streaming is not as lucrative as the old world of pay TV was," says Nollen. "Everybody has woken up to that, and they are coming up with ways to try to at least improve its fortunes, and bundling is one." 

Meanwhile, the crackdown on password sharing seeks to incentivize shared account holders to subscribe individually. Netflix was the first to announce restrictions on password sharing, limiting accounts to a single household. Disney followed suit and Warner Bros. Discovery will soon implement similar measures.

"The amount that people have been able to pay for, the volume of content they get up until now, is just an absurdly good deal, and I don’t think it’s sustainable," says Jon Giegengack, founder of Hub Entertainment Research, highlighting the looming tension between cost and content access.

The future of streaming depends on navigating this delicate balance. Media companies are seeking profitability, but consumer loyalty and market competition will continue to shape the landscape. As price increases become the norm, streamers will need to leverage innovative strategies to retain viewers and build a sustainable business model.

Article Reference

Brian Johnson
Brian Johnson
Brian Johnson covers business news and trends, offering in-depth analysis and insights on the corporate world.

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