Netflix is the only major streaming service that profits from dramas like The Crown and helps retain subscribers. Photo: Netflix
For Netflix, rising prices don't always have a happy ending. When founder Reed Hastings increased subscription prices by 60% in 2011, he caused a backlash that nearly killed the fledgling streaming service.
However, more than a decade later, rising prices are back in vogue. Both Netflix and Disney have raised prices, introduced ad-funding tiers, and begun tightening password-sharing enforcement – moves that would have been anathema just a few years ago.
Monthly subscription cost for the cheapest ad-free version . Netflix, Disney, Amazon Prime, Apple, Now TV and TNT Sports tiers are now just under £77 for UK customers.
This compares with TV provider Sky charging around £20 for a mixed basic package in the US. 2007 is the year Netflix launched its streaming service.
The change in strategy reflects a fundamental shift in Wall Street's attitude toward streaming as subscriber growth slows and rising interest rates push up the cost of debt.< /p>
After years of virtually unlimited spending fueled by cheap money, the sector is now adjusting to a new era of frugality.
“It's simply not a sustainable strategy. increase subscriber numbers at any cost,” says Mike Proulx, research director at Forrester.
He describes the shift to profits instead of growth as a “reality check” for an industry that as recently as 2021 pledged to spend more than $100 billion combined on TV and film in the race for attention.
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While Netflix and Disney were once weak rivals, they now have a dominant position in the market and subscriber growth has begun to slow.
This has pushed them to an uncomfortable tipping point where investors are now looking for profit. after years of pouring billions of dollars into companies to fund growth.
“It’s inevitable that you can’t remain the new kid on the block forever,” says Fiona Orford-Williams, media director at Edison Group. “Once you reach a certain level of penetration in your market, it becomes more difficult.”
Getting losses under control in Disney's streaming business, which includes Hulu and ESPN+, has been a key priority. for Chief Bob Iger. Investor concerns about mounting losses played a central role in the downfall of his predecessor Bob Chapek.
House of Mouse's streaming operations lost $387 million in the latest quarter, down from $1.47 billion in the same period last year, as Iger cut costs to appease investors.
Shares are little changed from where they were 12 months ago as investors await signs of more sustained improvement.
Even Netflix, the only major streaming service turning a profit, is facing pressure. to improve your profits. Shares have risen from the lows seen in the summer of 2022, but shares are still down more than 30% from their highs reached in 2021.
Netflix last month increased the cost of its “basic” plan by £1 to £7.99 a month, while its most expensive subscription rose by £2 to £17.99.
Disney, meanwhile, this month increased prices by £3 to £10.99, and also introduced two new cheaper plans, including one ad-supported tier.
Orford -Williams talks about growing interest. tariffs have “changed the tone of conversation” about streaming.
The platforms relied heavily on debt to fund their programs and expand rapidly, benefiting from an era of cheap borrowing. But recent increases in interest rates around the world have sent the cost of servicing this debt through the roof.
“For so many years you'd see free money on set – money didn't really matter,” she says. “And now they need to know a lot more about the budget and the potential audience, and what kind of money that audience will bring with them.”
Rising prices are an obvious lever for increasing revenue, along with tightening rules for sharing passwords. The introduction of cheaper ad-funded tiers has also helped stem a potential wave of subscriber losses.
So far, subscriber numbers have remained stable. Netflix reported an increase of 8.8 million customers in the third quarter, its strongest growth in years.
Disney, which will soon begin its own crackdown on password sharing, added 7 million customers in the last quarter. But bosses know there's a limit to that number. they can rely on this strategy before consumers defect.
A Forrester survey last month found that 50% of U.S. subscribers already believe they pay too much for their streaming services, and 43 % are considering upgrading to an ad-supported tier to save money.
Proulx says: “The irony is that companies like Netflix, which have long shunned advertising, are now embracing it. They've embraced the fact that the economics of a tried-and-true advertising model actually work.”
Pricing isn't the only way to improve profits, however: Companies are also cutting costs.
Costing platforms are making fewer TV shows and films, reducing the number of episodes in a series and shifting the focus to cheaper ones. genres such as reality.
Scott Stuber, head of Netflix's film division, said there has been a shift from quantity to quality.
“We're not trying to hit a certain number of movie releases right now,” he told Deadline. “It's about, 'Let's do what we believe in.' “, promised to improve his proposal. Photo: Disney
Meanwhile, Disney boss Iger acknowledged that his company also must improve the quality of its film studios' output after a string of recent box office failures.
For many industry watchers, promises to improve quality are easier said than done.
< p>Companies will still need so-called “shuttle” productions—sure-fire hits like “Stranger Things” or the “Star Wars” franchise that drive subscriptions.
But executives will also need to keep an eye on so that there is always a fresh list of programs to keep subscribers engaged.
“You need content to keep subscribers subscribing,” says Orford-Williams. “If you become boring, your churn will just increase.”
The shift in strategy has been complicated by strikes by Hollywood actors and writers, which shut down production over the summer.
While the strikes have reduced content spending in the short term, they threaten to cause a drought of new films and TV shows next year.
The lack of content is forcing platforms to think more creatively. Netflix is looking to cut its content costs in part by licensing more shows from third parties.
Meanwhile, Iger has said that Disney will license some of its content to companies like Netflix to open up new revenue streams.
Another tactic under consideration for retaining subscribers has come into the sports genre. , which has traditionally proven to be more affectionate to subscribers.
Despite the success of sports shows like Drive to Survive and Break Point, Netflix has been reluctant. transition to live sports. However, there are signs that this may be changing: this week the company launched the Netflix Cup golf tournament in Las Vegas.
Will it be enough? Analysts at Enders say industry restructuring and mergers are inevitable as the golden age of streaming gives way to cold reality.
Besides Netflix and Disney+, there are many other small subscription platforms that could be chosen.
Whatever happens, it is clear that Wall Street's attitude has changed – forcing the industry demonstrate that it can make money, not just spend it.
“Streaming services need to solve the value equation by answering the question of how to deliver consistently compelling content at a fair price while still making a profit,” says Pru. “With the exception of Netflix, every major streamer now faces this very dilemma.”
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