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.
