The news: Netflix is contemplating a price increase for its ad-free service, according to The Wall Street Journal, with indications that the hike might be implemented a few months after the Hollywood actors strike concludes.
- This increase is proposed for multiple markets, primarily starting with the US and Canada.
Zoom out: Netflix isn’t alone in this approach; over the past year, the cost of major ad-free streaming platforms has surged by approximately 25% in an effort to improve the bottom line.
Disney recently raised prices for Disney+ and Hulu.
YouTube nixed its cheapest premium plan recently after upping its YouTube TV pricing earlier in the year.
- The latest price increase is coming to the ad-free tier of Discovery+, with Warner Bros. Discovery announcing an immediate 30% hike in the US and Canada.
Why it’s happening: Content expenses have been ticking up for some time: Earlier this year, Amazon reported a 28% increase in content costs between 2022 and 2021.
- The Writers Guild of America's new agreement with the studios will increase costs for studios by $233 million annually—which will increase content costs.
Why it matters: This new dynamic has implications for consumers, advertisers, and platforms alike.
- The price increases may signal a new normal in streaming, one that inflation-weary consumers may be loath to stomach; 29% of US households are dropping streaming subscriptions due to financial considerations.
- Meanwhile, advertisers could be forced to adjust their budgets if CPMs trend upward to pay for platforms’ increased content costs.
- While some platforms may be safe from consolidation, others such as Peacock and Paramount+ may be under particular pressure to balance profitability with user growth.
Deeper dive: Netflix has previously initiated measures to increase user revenues, such as introducing a fee for sharing an account outside one's household. Disney+ is getting in on the password-sharing crackdown act as well.
- Disney and WBD are also exploring new content tiers, like live sports, to attract subscribers.
- Companies are also working to enhance the revenue generation of both their ad-free and ad-supported tiers. Case in point: Netflix's focus on halting password sharing effectively acts as a price increase.
Our take: With the increase in prices, streaming platforms might be aiming to shift a portion of their user base to ad-supported plans, which are proving to be more lucrative.
- According to several sources, ad-supported versions of Disney, Netflix, and WBD streaming platforms are generating higher average revenues per user (ARPU) than their ad-free counterparts.
- We’re now in an environment where streamers are prioritizing ARPU growth over increasing sheer subscription numbers.
- While price increases might be a concern for consumers, platforms are likely betting on exclusive content and unique offerings to retain their user base.