Why are all the Streaming Services Increasing Their Prices?

Price hikes were the norm for cable companies because many of us didn’t have alternatives and canceling was too hard.

Price hikes were the norm for cable companies because many of us didn’t have alternatives and canceling was too hard. But suddenly it feels like there’s a price hike in streaming bundles at every turn in the past few months.

In March, YouTube TV announced the first price hike in the industry by increasing from $35/month to $40/month. At the end of June, Sling Orange also increased service pricing by $5, and DirecTV Now raised prices by the same amount. PlayStation Vue announced intentions to increase plan prices by $5 at the end of July, bringing the base price to $45 per month for their 670,000 subscribers.

It’s discouraging to watch streaming services issue price hikes because the primary reason consumers cut the cord was to save money. Consumers are questioning rising prices in the face of subscriber growth and wonder if these price hikes are a long-term strategy to eliminate their savings. The timing does seem conveniently coordinated.

Don’t expect streaming prices to stop climbing over time. Price hikes aren’t unexpected as the industry matures and growth slows, but the market hasn’t crested that peak. The reason behind rising costs is complex, with many factors playing a part in pushing prices upward.

Loss leader

It would be easy to point to the recent price increases as being collusion amongst the big players, but the truth is that many of the streaming services operate at a loss or just at breakeven to spur growth and kick-start the industry. Two years of intense subscriber growth and launching new services has created significant marketing and expansion costs that were set aside to spur growth. Streaming services initially set aggressive prices to get new customers, but about half of them were only breaking even with that strategy.

AT&T’s DirecTV Now has offered steep discounts and free trials and continued to report losses. Despite championing the savings expected from a merger with Time Warner last month, DirecTV initiated a $5 increase to $40/month starting in late July for about 1.5 million subscribers.

While pressure to keep costs low has most streaming providers charging less now and hoping to earn more over time through targeted advertising and premium features, AT&T is at odds with industry strategy. The media giant intends to transform the DirecTV satellite platform into an internet-based premium streaming video with an $80-$90/month price tag. The profits would increase dramatically while the service capitalizes on the data gathering & targeted ad capabilities. It remains to be seen if consumers will allow the double dipping on subscription prices while their data is sold.

More cord cutters

It seems that record subscriber growth for the OTT providers should offset any cost increases necessary to expand service. In an economy of scale, it costs less to serve content to each additional subscriber than it did to the one before. Think of it as the Wal-Mart model: companies make a small amount of profit off of each item, but the volume of sales makes the company extraordinarily profitable.

Expansion costs justify a small price increase, but even with record growth, we’ve seen prices rise. SlingTV had 2.2 million subscribers at the end of 2017, growing rapidly from a projected 1.5 million at the end of 2016. The expansion should reach a tipping point where it’s less and less expensive to add new consumers.

More channels mean more content

According to the most popular streaming companies, service prices are rising to cover the cost of additional channels. Streaming services are packing in new bundles to appeal to a broader audience, but more channels equal more consumer cost.

Market pressure to provide the channels consumers want most isn’t likely to subside. Price hikes could be easily justified to consumers if the more popular content is available in a service. It’s likely that YouTube TV’s March price hike was initiated to cover the cost of adding the Turner network channels.

FuboTV faces a strange balancing act as it added AMC, Scripps, CBS, and other channels last year with an accompanying price change of $35 to $45 per month. The sports-centric streaming service is adamant about staying away from sports giant ESPN to keep costs low.

On the other hand, SlingTV defends their $5 per month increase by citing the fact that the service offers double the number of channels it did in 2015 and notably didn’t increase the combined cost for the bundled Orange + Blue plans, which stayed at $40.

Many bundle providers pursue major broadcast affiliates to give consumers a one-stop shop, but estimates are that local channels add as much as $12 per month in costs. The added sports and news appear to be an important incentive for many streamers to transition from traditional pay TV, but will certainly add to the bottom line.

For the most part, it appears that streaming services are offering more value for the increased price. If you have to pay more, at least you’re getting more services.

Streaming is still cheaper than cable… for now

Even with the modest price hikes cord cutters have seen this year, the profit that streaming companies are making is nowhere near the cash cow that cable providers have nurtured for decades. A bundled streaming package similar to a standard cable offering runs about $50 per month. That’s half the $106 that traditional TV service charged for a similar lineup of major broadcast networks, sports coverage, and major news outlets.

Price hikes aren’t limited to cord cutters. Almost every major pay-TV provider has raised prices this year on cable and satellite services. Lump in the nickel-and-dime tactics long practiced by traditional pay TV like contracts, arbitrary fees, set-top box rental and every other lucrative price gouge and the business model seems to be moving in a self-immolating fashion.

The strategies practiced by streaming companies exist in a complex economic market that doesn’t use simple math to justify price increases. In my opinion, streaming companies have a long way to go before price dissatisfaction sets in with consumers.

Megan Southard

Contributor

Article Author

Megan Southard is a writer, mom, technology enthusiast, and movie junkie. She dreads the day her kids have to explain gadgets to her and is old enough to say, "I was the remote for our TV growing up.

Disclaimer: This article may have had additional images, links or data that was added by this site's editor.

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