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As streaming platforms become increasingly profitable for media giants, the downside is that consumers are faced with increasing costs through more frequent subscription increases.
Major traditional media entities have ventured into streaming, vying for subscribers and competing with industry giant Netflix as traditional cable subscriptions decline. Companies like Disney and Warner Bros. Discovery are now seeking returns on their significant content investments.
To increase profits, these companies have introduced more affordable, ad-supported options, bundled service offerings, and imposed stricter account sharing policies. However, direct price increases have proven to be the most effective strategy for immediate financial gain.
Mike Proulx, vice president and research director at Forrester, emphasizes: “The era of low prices to drive user growth is over.”
Disney recently reported that its trio of streaming services — Disney+, Hulu, and ESPN+ — posted a profit for the first time in their fiscal third quarter, largely thanks to rising subscription fees despite growing their subscriber base.
In a recent earnings call, Disney CEO Bob Iger explained that the company’s pricing strategy is justified by its creative output and product improvements. He also noted minimal subscriber loss following previous price increases.
“We are seeing increased consumption and popularity of our services, which is reinforcing our pricing strategy,” Iger commented.
Rising costs
In recent months, several major streaming services have announced price increases. Disney, Warner Bros. Discovery’s Max, Comcast’s Peacock, and Paramount have all changed their pricing structures.
For example, Disney has unveiled plans to increase monthly fees for Hulu, Disney+, and ESPN+ by $1-$2. Paramount, during its quarterly earnings conference call, reported a 26% increase in average revenue per user for Paramount+, which it attributed to a recent price increase.
Comcast’s Peacock also raised its monthly fee for its ad-supported tier by $2, following a limited-time annual offer at $19.99. Warner Bros. Discovery similarly raised the monthly fee for its ad-free Max service.
Gunnar Wiedenfels, CFO of Warner Bros. Discovery, told an industry conference: “We are correcting the long-standing problem of underpricing of quality streaming content.”
Advertising as a strategic pivot
Despite the price increases, companies are also encouraging customers to choose cheaper, ad-supported tiers to attract more advertisers. This strategy has seen significant adoption, with Warner Bros. Discovery seeing a substantial increase in subscribers opting for its most affordable tier.
Advertising has become a more consistent source of revenue for streamers. For example, Warner Bros. Discovery and Paramount have reported significant year-over-year growth in streaming advertising revenue.
Meanwhile, Netflix, which had long resisted advertising, introduced an ad-supported subscription model following a slowdown in subscriber growth, offering a lower entry price to attract more users.
Bundling and the Response to Rising Costs
As streaming costs potentially outpace traditional cable spending, companies like Disney and Paramount are bundling their services into discounted packages. This approach not only provides value to consumers, but also helps providers stabilize their subscriber bases.
Additionally, there is an ongoing crackdown on password sharing, with several companies tightening their policies to ensure that accounts are only used within single households.
As the streaming landscape becomes increasingly competitive and expensive, companies continue to explore new strategies to maintain profitability and manage subscriber expectations.
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