Streamers Keep Raising Prices
YahooFinance senior reporter Alexandra Canal explains, “Streamers like Netflix, Max, and Peacock are raising prices — here’s why.”
It’s getting more expensive to watch your favorite streaming shows — especially if you want to watch them without commercials.
Ad-free streaming plans have become a primary target of price increases as media companies like Netflix (NFLX), Max (WBD), and Amazon (AMZN) raise the costs of their respective offerings — all while keeping the prices of cheaper, ad-supported options unchanged.
The gaps are considerable:
The “here’s why” is rather obvious:
It sounds counterintuitive at first. Why would streamers want to raise the costs of premium tiers at a time when consumers are becoming more choosy about the services they subscribe to? Wouldn’t they rather users sign up for more expensive options than cheaper ones?
Not necessarily, experts say.
“When you want to optimize revenue, you would actually increase the price of the ad-free tier because even if users turn to the ads, you’re still making the same money,” said Marc DeBevoise, who helped launch CBS All Access and now serves as CEO of streaming tech company Brightcove.
DeBevoise explained it all boils down to the additional ad revenue per user. Added on top of the subscription price of the lower tier, the total revenue per user will typically end up matching the premium option.
That’s why companies may decide to increase ad-free pricing since they want to be “economically differentiated in the two plans,” DeBevoise said.
“You want to have the ad-free tier effectively make you more money per user per month, if possible. So I could see [companies] tweaking the pricing for that reason,” he continued. “These are revenue maximizing opportunities, not necessarily trying to push more subscribers [to the ad tier.]”
Well . . . sure. But it strikes me as quite likely to backfire.
It’s quite possible that I’m an atypical user but modern technology has gotten me to the point where I simply won’t tolerate content with much advertising. Aside from live sports, I simply won’t watch shows with ads. I long ago gave up listening to radio, whether terrestrial or satellite, because of the ads and have substituted podcasts and streaming music. (A handful of the podcasts I listen to have ads but, since I listen almost exclusively while driving, it’s not all that annoying to hit the skip button on my steering wheel.)
Long story short, I’m simply not a candidate for the ad-supported tier. And, while I’m at the point where another buck a month likely won’t drive me away from a service that I watch a lot, I’ve already gotten to the point where I’ll subscribe to binge-watch a given show and then cancel. The higher the monthly price, the more likely that is.
Earlier this week, Warner Bros. Discovery (WBD) announced it will raise the prices of its ad-free plans on its streaming service, Max, by $1 each to $16.99 for ad-free and $20.99 for its “ultimate” tier, which allows four concurrent streams and 4K streaming options. The price hikes come just ahead of the second season of Warner Bros.’ blockbuster “Game of Thrones” prequel, “House of the Dragon,” which is scheduled for release on June 16.
Prior to Max’s increases, Comcast’s (CMCSA) flagship streaming service, Peacock, announced price hikes that will come in July, just ahead of the 2024 Paris Olympics, after it upped prices for the first time last summer.
The streamer plans to raise prices by $2 for its Peacock Premium plan and mostly ad-free Peacock Premium Plus tier to $7.99 and $13.99, respectively.
The timing of both companies’ respective increases is important.
“You seek to raise the prices in two types of moments. One is when you know folks don’t want to cancel and you have a large, full-ordered audience that wants to stick around for the amazing things you’re about to deliver,” DeBevoise said, referencing Peacock’s upcoming Olympics coverage and Max’s “House of the Dragon” premiere.
Here, I’m definitely atypical. The combination of NBC’s lousy broadcast and the fact that the Internet tells me the outcomes of events well before they’re broadcast long ago drove me away from the Olympics. And, if I’m ever to get around to “House of Dragon,” I’ll likely do so after its run is complete and then watch it in the course of a month.
Then there’s this:
“The other is when people are not paying attention and just let their subscriptions roll on their credit cards,” he added, noting many price adjustments are often tested on a smaller cohort of users before platforms roll them out to a larger subscriber base.
This happens way more than it rationally should. But, for example, there was a huge hubbub when the NFL aired a playoff game on Peacock last year, with people taking to social media to declare they would not pay. Millions did, though, and a huge percentage of those people maintained their subscription afterward.
For months now, I’ve been using a service called Privacy.com that acts as a virtual credit card. Most, if not all, of my subscriptions are on single-use “cards” that either have a set monthly spend or are one-and-done. That means that when, for example, my low introductory rate to the Wall Street Journal (like $4 a month) expired and they tried to charge me $38 for the next month, they couldn’t. This makes it much easier to avoid forgetting and avoids the annoying (and illegal) practice of making it next to impossible to cancel.
But I’m clearly a decided outlier:
But subscribers aren’t necessarily sticking around. According to the latest data from consumer measurement platform Antenna released at the end of May, US subscriber churn — or the act of paying users abandoning their streaming plans — stood at 4.6% in April, higher than the 4.2% seen in the same month last year. Still, the data was well off of the records reported at the start of the year in January, when overall churn came in at 6.1%.
That’s a phenomenally sticky audience. It’s no wonder that the companies keep raising prices.
In terms of whether or not there will be a ceiling on price hikes, DeBevoise said media companies are still “figuring out the audience,” especially as the content bundle consistently shifts for each streamer over time — whether it be tentpole event coverage like the Olympics or the exclusive rights to a sports game.
“Ultimately, they’re trying to find a very profitable model,” he said. “The real question will be exactly what price. You’re going to see that continue to be tested.”
That means more price hikes will likely be on the horizon.
In the short term, sure. In the longer term, this is just unsustainable. There are only so many hours that people have to devote to consuming entertainment. Live sports remains the golden goose but, even there, people will get tired—or simply be unable to afford—subscribing to multiple services just to watch their favorite team.
Further, the streamers themselves are killing themselves by bidding against one another for the rights to stream the games, not to mention to produce or acquire things like the latest “Game of Thrones” or “Yellowstone.”
Consolidation—essentially, the return of the cable bundle—is the inevitable outcome.
It’s the American way.
The premium ad-free tier is not there so people will pay more for their subscription. It’s there so you’ll think the ad-supported tier is a bargain.
Most podcasts I listen to have ads. Usually multiple times per ep. Worse yet, when I listen to several eps in a row, they’re almost always the same ads over and over again. But there’s an ad-free tier.
I grew up ignoring TV and radio ads. This is just more of the same.
@Kathy:
They’re rather impossible to ignore, in that they’re a disruption from the viewing/listening experience. Moreover, we had years (decades, in some instances) of premium services allowing us to be able to simply watch our shows in peace. This is therefore a significant regression.
@Kathy: Like James, I am willing to pay not to have to ignore the ads, despite having grown up ignoring them.
I was an earlier adopter of TiVo and have been avoiding watching commercials (save during live events) for quite some time.
One thing they seem to be forgetting is that their main competitor is actually “random site on the internet” and the thing that originally drove streaming prices so low was reducing consumer friction enough to make copyright piracy not worth the hassle.
If they increase the pain enough, they’ll find themselves back in the early 2000s again where their revenue crashes because suddenly no one is paying for anything…
Things have to be paid for. You either pay cash, or you pay attention.
@Michael Reynolds: I don’t mind paying for the services as the content is indeed expensive to create and the creators deserve to get paid for their work. The problem is that we destroyed the cable bundle so that people could just pay for what they wanted and have now gotten to a worse state: people need to subscribe to 7 services to get the same content, with 7 different user interfaces, etc. We’d be better off with an umbrella system where the various content providers were premium add-ons.
@Kathy: I detest ads. They annoy me so much that I would much, much rather not watch or listen to something than to do so with ads. For years I only watched shows on VHS and then DVD. Movies either the same way or in theaters. Podcasts you can fast forward through the ads. For the ones I listen to the most, I know how many clicks forward each ad break will take. For baseball, which I listen to as audio on the MLB app, I’ll immediately turn down the volume all the way and guess when to turn it back up. I’d rather miss the first few pitches of an inning than listen to an ad. So the ad free video streaming services are nice, but if they went away I’d drop the service altogether.
I’m so anti-ad that I haven’t listened to commercial radio or watched commercial TV since 1988. (Super Bowl and the commercials are the only exception.) People will sometimes ask me if I’ve seen some cool ad, and seem to not believe me when I tell them no. “But it’s everywhere!” Sometimes, really odd billboards will pop up that mean absolutely nothing to me, but I suspect they are part of some ad campaign I’ve never seen. It also means that I have almost zero exposure to popular music because I haven’t listened to commercial radio since the mid-eighties. I get my new music from chasing one thing that leads to another and another on Apple Music or letting its algorithms recommend stuff. But those recommendations are almost never anything super popular. I couldn’t tell a Taylor Swift song from a Post Malone one. There was only one string of years when I knew what was selling: the years when my kids were old enough to tune the car radio, but still needed someone to drive them. My internal pop music dial is set forever to “Pokerface” and “Cake by the Ocean”.
Every single streaming service except Netflix is losing ALOT of money for their parent company, and even Netflix is barely profitable. Netflix had 14.8B in operating profit in 2023, but still owes $14.1B in long term debt, so the profit number isn’t as rosy as it looks.
Disney lost over $2B.
Paramount+ lost over $500M
Hulu has lost over $1B, but may soon be profitable, barely.
Prime Video is losing so much money that Amazon just folds those numbers into the overall Prime membership metrics.
They can keep raising prices, but the bottom line is that most people will add and remove services based on the content they like at any given time. There is no loyalty, nor should there be. There are too many streaming services losing money, and there will be consolidation at some point. The current models are not sustainable.
i called to cancel my Hulu/Disney/ESPN plus bundle, and they immediately offered me the bundle at a reduced price of 7.99 for all three for six months. So i”m keeping it for another six months. We will see what happens then.
@James Joyner: @EddieInCA:
From what I glean from Hollywood media, everyone has accepted that we’ll have more consolidation. The old cable bundle will be the new streaming bundles. It’s a mordant joke that after all the billions spent, we have invented. . . television.
Content consumers have always had this fantasy of only paying for the content they want. In the extreme case, by the show. Slightly less specific, by the channel. Content creators, OTOH, want nothing to do with that. They want guaranteed payment up front. They don’t want to operate a widespread delivery mechanism, they don’t want to have customer care or billing departments. There will always be some sort of content aggregator between the creators and the consumers.
One of the lessons that many of us oldsters who were in the cable TV industry noticed over the years is that aggregator scale matters. Streaming consolidation will continue, and prices will rise, until enough of the little guys are squeezed out.
Living on roughly $35k a year, paying taxes on roughly $60k of it most years (and yes, I realize that makes me one of th’ po’ folk on this site). Needless to say, I stream almost nothing that charges fees and see this conversation as another example of the degree to which conspicuous consumption permeates segments of the whole who will still proclaim themselves to be “only middle class.” My biggest regret is that I won’t be around long enough to read the posts 20 years from now proclaiming how ridiculous it is to spend a couple of hundred a month in fees for more entertainment than one can consume.
“Say hello to the new boss, same as the old boss” isn’t just a song lyric or just about employment. It’s a feature not a bug.
@EddieInCA: It seems that Netflix Streaming took off in the era when streaming revenue was an unexpected extra, especially for series long off the air. Now that the revenue is baked in the prices are rising
Looking at the chart of streaming services, I see that there is a Peacock and a Peacock Premium Plus.
I know that I just now learned that they both exist, but I think this is a clear sign the industry craves at least another wave of consolidation.
@Gustopher:
One has ads. The other is ad free.
@EddIeInCA: Unless the graphic is wrong, they both have an ads tier and an ads-free tier.
I hope that graphic is wrong, because then the world would make more sense. That said, I refuse (on principle) to research the Peacocks and Paramounts of the world, for fear that my last three new long-term neural connections will be used to remember things about streaming services that will be gone in a year.
Having once produced Matlock, or broadcast Everybody Loves Raymond is not a reason to have a streaming service. No one needs Matlock+
@EddIeInCA: @Gustopher: Premium Plus is mostly ad free (they’re apparently required by licensing agreements to show them for some content) plus allows downloading and some other perks, including your local NBC channel.
One good thing about Peacock Premium Plus (which is why I get it), is that some sporting events are kept around for a couple of days. So, if you miss the day / time the event started, you’re still able to replay it later when you have more time. This is very important for figure skating events which happen a lot in overseas countries.