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The era of affordable streaming is coming to an end as major Hollywood studios raise prices, rivaling the expensive cable TV bundles that consumers abandoned for Netflix 15 years ago.
This autumn, a bundle of the top US streaming services will cost $87, compared to $73 a year ago. Disney, Paramount, Warner Bros Discovery, and others have increased their subscription fees in response to pressure from Wall Street to address the financial excesses of the streaming boom. The average monthly cost of a cable TV package is $83.
In recent years, Americans enjoyed an era of abundant content from Hollywood at a fraction of the cost of traditional television. Attracted by low prices, consumers quickly cut the cord and embraced streaming services, with Disney+ acquiring more than 100 million subscribers in just 16 months with its $6.99 subscription.
However, behind the scenes, media executives warned of an impending crisis as they spent billions of dollars on TV shows and movies. With interest rates skyrocketing over the past year and a half, the crash has finally arrived. Media stocks have plunged, prompting Warner Bros and Disney to implement cost-cutting measures, including layoffs, and to raise subscription prices to address the staggering streaming losses. Even Netflix has abandoned its basic $9.99 monthly subscription, now charging new customers $15.49.
“From a business perspective, streaming had to evolve in this direction—the price point had to increase,” said David Rogers, a professor at Columbia Business School and author of The Digital Transformation Roadmap. “This was further accelerated by the fact that we no longer have cheap debt to flood the market with streaming content.”
Disney recently raised its subscription fees for the second time in less than a year. The monthly cost of its ad-free service will increase by $3 to $13.99 starting October. Hulu will also raise the price of its ad-free subscription by $3 to $17.99, but both services can be purchased as a package for $19.99 per month.
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While there are cheaper streaming options available, they come with the addition of ads, reminiscent of traditional TV. Disney CEO Bob Iger expressed optimism about the long-term advertising potential of the business, even in a challenging ad market. He revealed that the ad-supported version of Disney+ has attracted 3.3 million subscribers at a cost of $7.99.
Iger also announced that Disney will crack down on password sharing, following in the footsteps of Netflix, which successfully converted many freeloaders into paying customers this year. However, some analysts question whether the price increases will slow down or reverse Disney’s subscriber growth, especially as Iger plans to cut budgets for streaming content.
“Will cutting back on content and raising prices be effective?” questioned Rich Greenfield, an analyst at LightShed Partners. “Can you raise prices by over 30 percent, reduce content spending, and still grow or maintain subscriptions?”
Rogers suggests that there are ways to incentivize subscribers to continue paying. “At a certain point, you have to watch out for people unsubscribing,” he said. “But [streamers] also have mechanisms in place for that—they can offer discounts for annual subscriptions instead of monthly payments.”
While a historic Hollywood labor strike continues, these entertainment giants also face the risk of running out of new content while demanding more money from consumers.
“[Disney] is demanding more from its customers while the amount of new content offered is likely to decline,” warned analysts at media consultancy Enders, who also highlighted the potential negative consequences if the strike persists. “The lack of fresh content, particularly for Disney+, will lead to increased churn.”
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