You get me hooked on all this salacious vomit you call "content" and then like some heroin dealer jack up the price. Oh, you dirty sick ...
Hey, wait a minute? You are trying to convince me you're losing money? What's wrong with you? Not you Netflix. I'm not done with you yet.
Streamflation Is Here and Media Companies Are Betting You’ll Pay Up
Price push by Disney, others is part of effort to trim losses, steer users toward more-lucrative ad-supported plans
By Robbie Whelan, Joe Flint and Nate Rattner, WSJ
Aug. 15, 2023
Call it streamflation.
The average cost of watching a major ad-free streaming service is going up by nearly 25% in about a year, according to a Wall Street Journal analysis, as entertainment giants bet that customers will either pay up or switch to their cheaper and more-lucrative ad-supported plans.
Disney DIS -1.97%decrease; red down pointing triangle last week raised the price of its Disney+ and Hulu streaming services for the second time since last fall, following a string of similar announcements by the owners of Peacock, Max, Paramount+ and Apple TV+.
The recent wave of price increases signals a new phase in the streaming wars. After years of charging bargain-basement prices in pursuit of fast growth, most of the big players face a financial reckoning, with tens of billions of dollars in losses piling up.
Now, in a push for profitability, they are testing the loyalty of their customers, betting that ratcheting up prices won’t lead more people to cancel service, an industry phenomenon known as churn.
“Can you raise prices by 30% and not increase churn? That’s the big question,” said Rich Greenfield, an analyst with LightShed Partners.
The price increases come as streaming services are enjoying a larger audience than ever before. Streamers captured a record 38.7% of Americans’ viewing time last month, according to new Nielsen data released Tuesday, which also showed that television viewing fell below 50% for the first time.
Streaming inflation also could drive more people to cycle in and out of subscriptions—just to catch their favorite shows—and to switch to lower-cost service options that come with ads.
When the monthly cost of the ad-free Disney+ service officially goes up to $13.99 in a few weeks, the service will cost twice its 2019 introductory price of $6.99. Disney was the first company to raise prices twice within a year.
There is one category of streaming platforms that Disney left untouched: the advertising-supported versions of Disney+ and Hulu, which will be $6 and $10 cheaper, respectively, than the ad-free alternatives once the latest increases go into effect on Oct. 12.
“We’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier,” Disney Chief Executive Bob Iger said last week during a call with investors to discuss the company’s quarterly results.
In recent months, Disney and rivals including Netflix and Max parent Warner Bros. Discovery have said that the ad-supported versions of their streaming platforms generate more money per user than their ad-free counterparts, as the advertising revenue more than offsets the lower subscription cost.
Netflix, which has stood out by not raising prices over the past year, last month stopped offering its basic $9.99-a-month ad-free tier in the U.S., which had the effect of significantly expanding the price gap between its $15.49 standard ad-free plan and its $6.99 ad-supported tier. The streaming giant also started limiting password-sharing in earnest earlier this year, which led many households to pay a new monthly fee to share an account with people who don’t live with them—a price increase of sorts.
Overall, the price of most major ad-free streaming platforms is about twice as high as their ad-supported alternatives, with Max being the sole exception: at $15.99 a month, its ad-free tier carries a 60% premium over the $9.99 Max with ads.
Many of these ad-supported plans aren’t yet a year old. Both Netflix and Disney+ have seen their subscriber numbers in North America stagnate in recent quarters, and offering a more affordable ad-supported option gives them a chance to appeal to price-conscious customers.
Disney says that since it launched the ad-supported tier of Disney+ late last year, 40% of new subscribers have selected the version with ads.
During Disney’s previous round of increases—when the company offered users of its $7.99-a-month ad-free Disney+ plan the option to stay on the ad-free plan but pay $10.99 or keep paying $7.99 but be served ads—few customers defected.
Disney said about 94% of subscribers to the ad-free version swallowed the $3 increase and stuck with the service. This was a sign to the company that there was room for further price increases, Iger said last week. Disney is now raising the price of the ad-free Disney+ to $13.99, while Hulu, at $17.99 a month, is about to become the most expensive single streaming subscription on the market.
Warner Bros. Discovery Chief Executive David Zaslav has long argued that most streaming services are underpriced given the amount spent on content. “We’re not in the business of trying to pick up every subscriber, we want to make sure we get paid and that we get paid fairly,” Zaslav told investors last year.
Raising prices is only part of the strategy for entertainment companies to narrow their losses in streaming. They are also trying to cut spending.
Roy Price, a former Amazon executive who launched the retail giant’s on-demand video service in 2008, said streamers are struggling to cut content budgets without sacrificing subscriber growth.
“You have to be releasing enough content that in any given period, there’s something really good,” he said. “You need a lot of hits, and to get them, you have to take a lot of trips to the plate,” Price said. He said streaming services should focus on programming that appeals to the growing parts of their user bases.
U.S. households that have at least one streaming platform subscribe to an average of 4.1 services, for which they pay $29.64 a month, according to S&P Global Market Intelligence—nearly twice as much as in 2018, just before the streaming wars began in earnest.
Over the course of a few months between the fall of 2019 and the summer of 2020, four major streaming services—Disney+, Peacock, Apple TV+ and the platform now known as Max—were launched.
Greenfield said the risk that customers will hop on and off between services when they are done watching a specific show is likely to increase given the growing cost of each platform.
“It’s just so easy to just cancel and rejoin streaming services,” he said. “You subscribe to Disney+ for ‘The Mandalorian,’ or to Max for ‘House of the Dragon,’ then cancel once you watch it.”
One way that companies can partly shield themselves from customer defections is by bundling their streaming offerings. Data provider Antenna, which tracks consumer spending habits in the U.S. on products including streaming services, has long noted that churn in the Disney bundle, which includes Disney+, Hulu and ESPN+, is consistently lower than competitors.
Disney on Wednesday said it was creating a new bundle, offering access to the ad-free versions of Disney+ and Hulu for $19.99 a month.
Iger last week said Disney grew its streaming business very fast, “before we even understood what our pricing strategy should be or could be.”
Write to Robbie Whelan at robbie.whelan@wsj.com, Joe Flint at Joe.Flint@wsj.com and Nate Rattner at nate.rattner@wsj.com
Netflix co-Chief Executive Ted Sarandos said the company and other streaming platforms, studios and networks were “super committed” to reaching a deal with striking Hollywood actors and writers. Photo: Chris Delmas/Agence France-Presse/Getty Images
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