Illustration by Alex Castro / The Verge
It’s a lose-lose situation. While some streamers are losing money by paying to get content on their platforms, others are losing money by distributing it on their own platforms. The result? Price hikes.
Streaming services just keep creeping up in price. Netflix, Hulu, Disney Plus, ESPN Plus, and Apple TV Plus all announced price hikes this year, which means we’re forced to have to pay more money to keep up with the shows that are actually relevant, like Andor or Stranger Things.
The truth is, this trend isn’t going to stop anytime soon. Streaming services need to raise their prices or embrace advertising if they want to meet investors’ expectations. They’re just going to have to risk losing subscribers who don’t want to pay these jacked-up prices along the way.
Back in 2011, a standard Netflix subscription cost just $7.99 per month — $1 more than the ad-supported plan Netflix launched last week. The company introduced its $11.99 per month 4K premium subscription in 2013, and from there, things just got more expensive, with Netflix making $1 or $2 price increases across all its plans over the course of the next several years.
In 2017, Netflix’s most expensive plan jumped from $11.99 to $13.99, and its standard plan went from $9.99 to $10.99. At the time, the company attributed the hike to the addition of new exclusive content and features. But this obviously wasn’t the end of Netflix’s price increases: it went up once again in 2019, bringing the premium price to $15.99, the standard plan to $13.99, and raising the basic option for the first time to $8.99. Netflix raised the standard and premium plans by another $2 in 2020 and then cranked up the prices again earlier this year.
That’s how we got where we are now: paying $19.99 for a premium plan, $15.49 for the standard plan, or $9.99 for a basic subscription. But Netflix isn’t alone. Hulu raised the price of its ad-supported subscription for the first time last year, and younger services, like Disney Plus and Apple TV Plus (both of which launched in 2019), all raised their prices this year.
As streaming services dump more money into building a library of content, they aren’t benefiting so much from adding new subscribers as the streaming landscape continues to mature, and most people have locked themselves into the services of their choice. According to data analytics group Kantar, as of December 2021, 85 percent of households in the US were subscribed to a streaming service. This number only increased by 2 percent year over year, leaving little room for growth.
“Streaming TV is in its adolescence now,” Eric Schmitt, a research director and analyst at Gartner, tells The Verge. “The early days of the land grab are ending. We’re coming into a phase where the service providers need to demonstrate that they’ve got viable businesses to their investors.”
On top of that, services like Netflix don’t cash in on licensing content out to other platforms. Netflix’s original content is exclusive to its service and it pays to get the rights to other studios’ content on its platform. That’s why the service took action after it reported losing subscribers for the first time in over a decade in April and then lost millions more in the months that followed. The company has since rolled out an ad-supported tier and is planning to crack down on password sharing next year in a bid to diversify its source of revenue and squeeze existing subscribers. It also put a $17 billion cap on content spending set to last through 2023 and perhaps the new few years.
Apple TV Plus is stuck in a similar situation as Netflix, as it only generates money from attracting subscribers — not by licensing out the content it spends money to create. Apple raised prices across all of its services last month, including Apple TV Plus, citing “an increase in licensing costs.” While the company hasn’t yet turned to advertising to help mitigate some of these expenses, it’s almost guaranteed that it will.
“I think ad-supported is an inevitable state for almost every service,” Schmitt says, noting that there’s a portion of viewers who will tolerate ads in order to get a lower subscription price. There have been a couple of rumors floating around about the possibility of Apple TV Plus incorporating ads, with a recent report from DigiDay indicating that Apple has been in talks with media agencies to bring commercials to the service. It’s also reportedly building an advertising network around its deal to stream Major League Soccer games, according to Bloomberg.
But even if a streaming service does generate some extra cash by licensing content to other platforms, this presents another problem that results in price hikes as well. Let’s take Disney, for example, which uses much of its own content to fill out Disney Plus and Hulu’s libraries.
Earlier this year, Disney took a $1 billion hit to end an unnamed licensing agreement early and get the content on its own platform. While Disney didn’t specify the content in question, some suspect it had to do with the company reacquiring the Marvel shows Netflix produced in the mid-2010s, like Jessica Jones and Daredevil, which now reside on Disney Plus. Ending lucrative agreements like this (and not setting them up in the first place) leaves Disney no choice but to hike prices to make up for this loss.
And that’s exactly what Disney did; it’s raising the price of Disney Plus from $7.99 per month to $10.99 per month starting in December and already increased the ad-supported Hulu plan from $6.99 per month to $7.99 per month, with the ad-free version going from $12.99 per month to $14.99 per month. Even ESPN Plus went up in price back in July, which explains why 40 percent of subscribers have opted to buy into Disney’s bundle that includes all three services at a cheaper price.
“The price of streaming services is reflective of the economic realities and costs that it takes to produce and distribute the content,” Schmitt says. “And I think the market is catching up with the fundamental physics of those costs.”
Although Disney Plus added 9 million subscribers in the US over the past several months, it still lost $1.5 billion in direct-to-consumer revenue due to an “increase in programming and production costs” as well as a lack of straight-to-streaming cinematic releases. To further shore up its losses, Disney has also chosen to adopt the ad-supported model and will roll out the new $7.99 per month tier on December 8th.
While many are increasing prices because they can’t afford not to, it seems like some other services are just hopping on the price increase bandwagon because everyone else is doing it. Paramount’s chief financial officer Naveen Chopra basically admitted this in an earnings call earlier this month. “I think it’s fair to say that pricing is moving higher across the industry — you see that with a number of competing services,” Chopra said. “We think that means we have room to increase price.” Paramount Plus hasn’t increased its price in the US just yet, and that’s probably at least in part because it still makes money by licensing a boatload of its content to other services.
The platform exclusively houses content like most of the Star Trek franchise and an iCarly reboot, but a lot of Paramount’s content is on other platforms, including South Park, which is on HBO Max, and the massive hit Yellowstone, which lives on NBC Peacock. This might generate income in the short term, but it doesn’t help the streamer build out an attractive library like Netflix. It does seem like Paramount’s working on fixing the predicament it has put itself in, though, as it drove up subscribers by exclusively adding Halo and Yellowstone spinoff 1883. The service is also releasing another Yellowstone prequel, 1923, in December.
And while I would mention HBO Max, its parent company’s megamerger with Discovery has created a dumpster fire worth an article of its own. As The Verge’s managing editor Alex Cranz points out, Warner Bros. Discovery CEO David Zaslav is focused on “making as much money as cheaply as possible,” which means axing tons of content and cashing in on movies shown in theaters before later moving them to the service, eliminating the straight-to-streaming model. While Zaslav hasn’t mentioned a subscription price increase yet, he said during RBC’s Global TIMT Conference that “it’s going to be hard” to meet the company’s $12 billion earnings forecast if the current ad market doesn’t improve.
The way streaming services have things set up is a lose-lose situation. I committed to paying a base price for services like Netflix, only to get smacked with repeated price increases and questionable amounts of value added with low-effort originals and cheesy competition television shows. Luring folks in with a low intro price and then cranking things up was always the plan for many of these companies (Disney was especially open about it), but as prices continue to go up, I expect a lot of people will be like me — ready to say enough is enough. When the time comes, I’ll kick aside my Disney Plus or Funimation subscription (because even that’s gone up).