Netflix is replacing the cable TV “bundles” that consumers abandoned 15 years ago.
In the fall of this year, a basket of top US streaming service costs $87, up from $73 last autumn. This is because Disney, Paramount and Warner Bros Discovery, among others, have increased their prices to respond to Wall Street’s pressure to stop the excessive spending of the streaming boom. Average cable TV packages cost $83 per month.
In recent years, Americans enjoyed an extravagant Hollywood era where media companies flooded audiences with more content than ever before at a fraction the cost of conventional television.
With a $6.99 monthly subscription, Disney+ attracted more than 100mn users in 16 months.
Media executives privately warned that a ” automobile crash ” was imminent as they spent tens and tens billions on films and TV shows.
The crash is here as interest rates have skyrocketed over the last year and a quarter. Wall Street became impatient due to the massive streaming losses. This led to a brutal correction in media stocks.
Warner Bros. and Disney, after seeing their stock values more than halved, have moved to austerity. They’ve laid off thousands of employees and raised their subscription prices in order to reduce billion-dollar streaming loss. Netflix dropped its $9.99 monthly subscription that was free of advertisements earlier this year. New customers now pay $15.49.
David Rogers, professor at Columbia Business School and author of The Digital Transformation Roadmap, said that from a business perspective, streaming would have to change in this direction. This was accelerated because we no longer had cheap debt that allowed us to flood the market.
Disney has increased its subscription prices for the second time in less than one year. The monthly fee of the ad-free Disney service will now cost $13.99, up $3 from October. The price of Hulu’s ad-free service will increase by $3, to $17.99. However, the two services can be purchased as a bundle for $19.99 per month.
Although there are cheaper streaming options available, they come with a feature that is not as popular: advertising. Disney CEO Bob Iger said this week that he was “very optimistic” about the advertising potential for this business in the long term, despite a difficult ad industry.
He said that Disney+’s ad-supported version, which costs $7.99, has 3.3mn users.
Iger said that Disney will also begin cracking down on password sharing – a move which was first made by Netflix. Netflix has converted many freeloaders to paying customers in the past year.
Analysts questioned if the price hikes would slow or reverse Disney’s subscriber-growth, especially since Iger plans to reduce budgets for streaming movies and shows.
Rich Greenfield, analyst at LightShed Partners, asked: “Does raising prices and cutting content spending work?” “Can you increase prices by another 30+ per cent and reduce content expenditures while continuing to grow or maintain subscriptions?” asked Rich Greenfield, an analyst at LightShed Partners.
Rogers suggested ways to encourage customers to continue paying. He said that at a certain stage, you have to be on the lookout for people who are unsubscribing. “But [streamers] have mechanisms for this — they can offer a discount if a customer buys for a full year, rather than paying month-to-month.”
These entertainment giants risk running out new shows while they continue to demand more money from consumers.
“[Disney] asks more and more from the customer. . . While the amount of content available will likely decrease,” analysts at the media consultancy Enders warned that a strike would have “real consequences and a downward spiral.”
They added that “lack of new content, especially for Disney+ will increase churn.”