If 2023 was the year of “streamflation,” to use a term coined by the consulting firm KPMG, 2024 is shaping up to be a fast sequel — Streamflation Part 2: They’ll Keep Paying.
Streaming services across video and music are raising prices again, or are poised to do so, marking the second such price hikes in as many years.
Beginning in July, NBCUniversal’s Peacock will bump up the cost of its Premium and Premium Plus plans by $2 per month after raising them by $1 a year earlier. The timing coincides with the beginning of the Paris Olympics, for which Peacock will be the streaming home.
In June, Warner Bros. Discovery’s Max hiked the price of its ad-free tiers by $1 a month, just ahead of the debut of the new season of House of the Dragon. And Spotify — the clear market leader in streaming music — increased the cost of its premium plans as well, by $1 to $3, depending on the plan.
If 2023 was any indication, price hikes come in waves, and analysts view the latest moves as an opening salvo. In a June 4 note, JPMorgan analyst Daniel Kerven wrote that although the bank initially expected every streaming music service to raise prices by Q3 2025, he now expects them all to raise prices by the end of this year. “The second round of price rises in 18 months should give investors increased confidence that developed markets can see consistent price rises,” he added.
Superficially, the price increases are about “value.” Spotify is adding audiobooks, Netflix is adding the NFL. More and better content can justify higher prices while staying true to the firms’ central value propositions. “Audiobooks is an exciting opportunity for Spotify, but it’s the earnings cherry on top of the music pie,” Morgan Stanley’s Ben Swinburne wrote May 30.
But as with last year’s price increases, the new hikes are also a subtle bit of social engineering, strategic moves meant to push consumers in certain directions or otherwise pay up.
While many streaming services (looking at you, Max, Disney+, Paramount+ and Peacock) are desperately seeking streaming profits, a cause for which price hikes would be helpful, there are two other strategic priorities at play, each of which is meant to help with that larger goal of building a sustainable business.
Those priorities are advertising and bundles. As Hulu has proved (and as Netflix executives have suggested publicly), ad tiers are increasingly more lucrative than ad-free tiers. And the price hikes, in many cases, are clearly designed to make the ad tiers that much more attractive to consumers. Just look at Max’s recent price hikes or Netflix’s bump last year, each of which left the ad-supported plan intact.
“Thus far, as the ads-only group has grown, the group watching ad-free has shrunk. And there is reason to believe this dynamic will accelerate,” Hub Research’s Mark Loughney noted May 29. “As prices rise, more ad-free subscribers are likely to decide it is worth accepting advertising to save on a subscription. Combined with more consumers becoming aware of the lower-cost ad-supported options, tier-switching should gain momentum among the ad-free viewers.”
It’s also no coincidence that the past year has brought with it a resurgence in bundling, with seemingly every streaming service eager to cut deals, either taking the initiative themselves (as with Disney’s upcoming Disney+, Hulu and Max bundle that Disney is leading) or via a partner (as with Comcast’s Apple TV+, Netflix and Peacock bundle or Verizon bundling Netflix and Max).
And not only do bundles drive new subscribers to ad tiers, they reduce subscriber churn in the process. Consumers who subscribe to a service to watch a specific show, only to cancel after that show is done, have become a scourge of the industry, and services have found that combining makes them stickier.
“For the bundle really to be effective, it needs to be that when you go there, you can move across the full program offering,” WBD CEO David Zaslav told a Bernstein conference May 30, adding that his grandkids might want to watch a Disney+ movie, followed by Harry Potter, with the parents watching Succession. “We have found that when you bundle together with other content that more people in the family like — on a very basic level — the more often you watch product, the more people in the family that watch the product, the lower the churn.”
The fact that Netflix suddenly seems open to bundling its ad tier with other services is also welcome news to its streaming competitors, with the service known for having exceptionally low churn among subscribers.
“Netflix’s upfront presentation showed progress in building scale (40M ad tier MAUs) & ad tech/ monetization, & we believe that Netflix will drive ad tier growth through bundles, changes in pricing & plans, & marketing,” Anmuth wrote May 31. “We project ad tier subs of 28M at the end of 2024 & 39M at the end of 2025 which, assuming 2 viewers per member, ties to ~60M MAUs in 2024 & 80M in 2025.”
It’s a larger trend that Bank of America’s Jessica Reif Ehrlich wrote June 4 as “back to the bundle.”
“Our thesis was (and remains) that, as the streaming market has become saturated and given the reduction in churn and subscriber acquisition cost associated with a bundled offering, media companies will return to commercial partnerships/bundling agreements,” she wrote. “That has played out so far this year.”
For any company, a price hike is about achieving a goal, be it profit margins, or changing consumer habits. Given the apparent stickiness of these streaming bundles, or the ARPU of ad tiers, every price increase is an opportunity, to increase margins, or to gently push consumers towards ads and bundles, all of which can serve the company’s larger goals.
This story first appeared in the June 12 issue of The Hollywood Reporter magazine. Click here to subscribe.
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