Over the past few weeks, competitors in the video streaming
business announced different pricing strategies. Netflix, with 58 million domestic subscribers
and an extensive library of licensed and original content, announced it was
raising the monthly price of its basic plan by $1 ($7.99 to $8.99), its most
popular plan by $2 ($10.99 to $12.99), and its high-end plan by $2 ($13.99 to
$15.99). Similar to the “old” argument
made by pay-TV providers, higher prices are necessary to cover the higher
programming costs. But, with the 12.5 percent to 18 percent price
increases, Netflix is testing the loyalty of its subscribers and the elasticity
of demand of its product at a time when the market is becoming more crowded and
fragmented. Legacy content owners like
Disney and NBCUniversal are testing demand for their own stand-alone
direct-to-consumer offerings. At the
moment, Disney has announced that it is breaking its ties with Netflix when it
launches Disney+ at the end of the year.
By contrast, NBCUniversal indicated that it will continue to license its
content (like The Office to Netflix)
when it enters the fray in 2020. (Ironically
though, this is the same year its Netflix agreement is up for re-negotiation.)
Hulu, with 25 million subscribers and soon to be 60 percent
owned by Disney, recently announced that it was leaving its ad-free service
price unchanged at $11.99, while lowering the price of its most basic plan by
$2, from $7.99 to $5.99. The price for Hulu
Live, the service that most closely resembles pay-TV, will jump by 12.5 percent,
from $39.99 to $44.99.
With multiple plans offered by each competitor, the choice
of what to subscribe to has and will continue to become more difficult and more
frustrating for consumers. Trapped in a “box”,
will consumers feel like they are getting the “bang for their buck” they were
seeking in a shift towards a la carte pricing.
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