Streaming is getting more expensive for consumers. Here’s why

Streaming is finally starting to pay off for media companies, but there’s a catch — to get there, consumers face higher subscription costs and increasingly high prices.

Traditional media companies have entered the streaming market with a focus on acquiring subscribers and competing with the leaders in their category. Netflix With traditional cable TV packages losing customers, they are now looking for a return on their content investment. Disney, Warner Bros. Discovery Others aim to make money through live streaming.

Their strategies include rolling out cheaper, ad-supported models; launching platform bundles; and cracking down on password sharing, but higher prices have shown more direct results toward profitability.

“The years of prioritizing user growth over low prices are over,” said Mike Proulx, vice president and research director at Forrester.

Disney said last week that its combined streaming services — Disney+, Hulu and ESPN+ — were profitable for the first time during the fiscal third quarter. While the company added new subscribers, the milestone was largely due to price increases.

CEO Bob Iger said during the earnings call that Disney has “earned” its pricing in the market because of the company’s creative contributions and product improvements. He noted that with previous price increases, the company has not seen a “significant” number of customers leave.

“When we look across our portfolio … we see growth in consumption and popularity of our offerings, which gives us the pricing leverage we believe we have,” Iger said.

Major streaming services have seen a number of price increases and changes over the past few years.

In the past five months alone, four streaming companies have announced price increases: Warner Bros. Max, Discovery, Comcast Peacock, Disney and Paramount.

While Comcast offered a limited-time annual subscription for $19.99 ahead of the Olympics, the company raised the monthly cost of its ad-supported service by $2 this summer, marking the second price hike this year. Warner Bros. Discovery also raised the cost of its ad-free Max service by $1 a month in June.

“For a decade, there has been a tremendous amount of high-quality content being offered at prices well below fair market value, and I think that’s in the process of being corrected,” Gunnar Weidenfels, chief financial officer of Warner Bros. Discovery, said at an industry conference last year. “We’ve seen price increases across almost the entire competitive spectrum.”

When Disney reported revenue growth last quarter, it was driven primarily by higher subscription prices, Forrester’s Proulx said, since user growth and advertising revenue alone wouldn’t support profitability.

He added that this puts the burden of revenue growth somewhat on consumers, and users feel this pressure.

In a survey of 3,000 consumers, 90% agreed that streaming video subscriptions are raising their prices more frequently than in the past, according to Hub Entertainment Research.

At Peacock, 75% of subscribers were on the ad-supported tier as of February of last year, according to Search from AntennaAt the time, it had the largest share among all major streaming companies, followed by Hulu at 57% and Paramount+ at 43%. Streaming companies typically don’t disclose details of subscriptions by tier.

“The advertising level for all of these companies is attractive because they can generate as much advertising revenue as they do from subscription fees at the advertising level,” said Tim Nolen, senior media technology analyst at Macquarie.

Netflix executives had been opposed to advertising for some time but changed their stance in 2022 after subscriber growth slowed. The company also recently dropped its cheaper, ad-free basic plan — leaving consumers with option Ad-supported option for $6.99, or two ad-free plans for $15.49 or $22.99.

Netflix co-CEO Ted Sarandos said on the company’s second-quarter earnings call that the ad tier makes Netflix more accessible to users because of the lower entry price. For both tiers, when it comes to raising prices, Sarandos said Netflix aims to increase value and engagement before subscribers pay more.

In general, consumers who have to pay for live TV are willing to put up with ads in order to pay lower subscription fees, according to Forrester research. However, ad categories aren’t immune to price increases. Disney+, for example, is now raising prices for its ad-supported plan.

Disney took a unique approach to launching its ad-free tier in December 2022, giving existing subscribers the option to pay an additional $3 per month or accept ads. According to Antenna, nearly 95% of Disney+ premium subscribers paid to keep streaming ad-free.

Warner Bros. Discovery said on an earnings call that it suffered fewer customer losses than expected in July, after raising the price of its ad-free streaming service by $1.

“Until there is a mass exodus of users, Disney (and others) will continue to raise prices,” Proulx said.

There’s one key thing working in streaming providers’ favor: Across platforms, users often aren’t willing to sacrifice the content they want even when costs rise, said John Gigginjak, founder of Hub Entertainment Research.

However, the total cost of streaming can sometimes exceed the cost of cable for some consumers because the content they consume is split across different platforms, according to Prolex.

In response, companies like Disney, Paramount and Warner Bros. Discovery have bundled their services into one discounted offering. In cases where streaming is no longer cheaper than traditional TV, bundles allow consumers to save money while accessing TV content across different services, according to Proulx.

For providers, bundles are an opportunity to increase revenue because they expect fewer people to cancel their bundled subscriptions than standalone subscriptions, according to Nolen.

“The new streaming world is not as profitable as the old pay TV world,” Nolen said. “Everyone has woken up to this and is coming up with ways to at least try to improve its fortunes, and programming bundles are one of those ways.”

Live streamers are also working to increase their total user base by cracking down on password sharing. Last year, Netflix Members were alerted that accounts could only be shared within a single household, and Disney has done the same. advertisement Earlier this year, Warner Bros. Discovery is set to follow suit soon.

However, as consumers continue to face rising subscription costs, Gijingak points to broader competition in the streaming space. While initially lower subscription prices helped other streaming services increase subscriber numbers, he said they can’t afford to continue doing so.

“The amount of money people have been able to pay, and the amount of content they’re getting so far, is just a ridiculously good deal, and I don’t think it’s sustainable,” Gigginjak said.

Disclosure: Comcast owns NBCUniversal, the parent company of CNBC, and is a co-owner of Hulu. NBCUniversal also owns NBC Sports and NBC Olympics, and is the U.S. broadcast rights holder for all Summer and Winter Games through 2032.