Late last year, a lot of people got an email.
It said that the price of the Disney Plus annual plan was increasing AGAIN.
But that wasn't the only one.
Netflix was going up and depending on where you live in the world, their most affordable tier would also now have ads.
Amazon Prime, Apple TV+ and Hulu pricing also went up.
There are so many great things to watch and they're all spread across so many different services. People want to watch them all but it hurts to fork up so much money every month to do it.
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It kind of makes you wonder, how did we all end up in this position where we're paying so much for streaming every month?
And maybe more importantly, can we as consumers do any better?
To answer these questions, we first need to look at the story from the streamers’ perspective. And we'll start with Netflix - the biggest and oldest streamer around.
For most of its history, Netflix made money in one way, its subscribers.
So, if Netflix wanted to make more money, they either had to add subscribers or raise prices. This was always Netflix's strategy.
As this 2021 New York Times article explains, the CEO and founder of Netflix was betting that the company could attract subscribers and raise its prices faster than the debt clock was ticking.
And Netflix had taken on a lot of debt... almost $15 billion by 2020, with the purpose of building an entire platform's worth of content, ensuring that they weren't reliant on movies and TV that they didn’t own like The Office or Friends.
This strategy worked, and for a long time, Netflix grew really reliably, even as its prices went up.
They'd had very steady growth, 2015, 2016, 17, 18, 19, and then the pandemic happens in 2020, and they have their best year ever.
Netflix got to a point where they realized that their growth was much slower than it had been.
They get nervous.
And then in 2022, Netflix actually lost subscribers.
There are only so many people in the population, right? Even if you get everyone there is a ceiling to that.
But they also knew that they had more customers than it appeared.
Password Sharing
Netflix had said publicly that they were not worried about it.
And early on, it's true, they were not worried about it, because password sharing was a way of exposing the service to more people. And if people liked it, they would convert.
But at a certain point when they hit a bit of a ceiling, looked at the numbers and realized that the only way that they were going to be able to grow was if they could convert some of those sharers into payers.
This move created a temporary surge in subscribers. It made enough of a dent that other companies are following in these footsteps.
But Netflix isn't the only trendsetter.
While all this was going on, another company was carving out a slightly different path.
Hulu has always had two tiers to its service - ad free and ad supported.
According to this 2019 article, Hulu's ad supported option was the most lucrative tier of their business. It was so successful they actually lowered the price from $7.99 to $5.99.
Advertising has been the key to a successful video business forever.
You know, you think about the cable business, you don't think about paying for discrete channels, but you are paying for a bundle of channels.
And, oh by the way, those channels still have advertising.
So it's not really a foreign concept. That's something that Hulu had done quite effectively.
As more streamers crowd the market with ever increasing prices, pretty much every service, including Netflix, has introduced a more affordable, ad-supported tier to their offerings, which people seem to appreciate.
Ad supported plans have been driving an increasing percentage of new signups and supplementing each company's bottom line.
But here's the thing, most of these companies still aren't profitable.
Part of it is just that they're so new, I think we lose sight of that. These companies spent billions and billions of dollars to launch new services and take on Netflix.
And they tried to condense 15 years of Netflix’s streaming service into 3-5. And that was very expensive.
So that's it, more or less.
Companies fighting debt, revenue losses, subscriber losses, or a mix of those things have raised prices and added ads in hopes to become or remain profitable.