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Streaming: the danger of price increases

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Inflation is not just about food and energy. Streaming services are also taking advantage of the period to raise their prices. Apple is the latest company to announce an increase in its streaming services (Apple TV+, Apple Music, Apple One). This widespread movement is likely to result in consumer arbitrage. This is a very dangerous game in which all platforms could lose.

Streaming services’ price increases

  • Apple TV+: +40% (6,99€ instead of 4,99€)
  • Apple Music: +10% (11,99€ instead of 10,99€)
  • Apple One: +3€
  • Amazon Prime Video: +20% (5,99€ instead of 4,99€)
  • YouTube Family Premium: +23% in the United States (22,99$ instead of 17,99$)
  • Disney+: +2€ in Europe et +3$ in the United States

Apple was the latest streaming platform to announce widespread price increases. On the one hand, these price increases are justified by the rise in salaries, and on the other hand, by the rise in energy costs which impacts the functioning of data centers (5% of the world’s electricity is consumed by data centers). Inflation is, therefore, no longer limited to the prices of tangible products but also affects digital products.


The dangers of price increases

First of all, you will notice that all the prices proposed use the pricing technique called “just below pricing.” This means not rounding up the price. We have explained how this technique works in this article. However, there is still a danger that price increases will cause consumers to switch and unsubscribe. This was observed when Amazon increased the price of its Prime service.


The average number of SVOD subscriptions per household doubled in Europe between 2020 and 2022, from 1.5 to 3.


For SVOD, the danger is even greater. Each household has an average of 4 subscriptions in the United States, compared to an average of 3 in France, Italy, Germany, Spain, and the United Kingdom. The average number of subscriptions per household has doubled in Europe between 2020 (1.5) and 2022 (3). The platforms have succeeded in differentiating themselves (thanks to their content catalogs) and pushing consumers to spend. But in times of inflationary crisis, more than a differentiation strategy is needed to avoid arbitrage effects. SVOD subscriptions meet the same need: to be entertained. They cannot all be used by the same person simultaneously. Their usage rate can therefore be relatively low.


What are the potential growth drivers?

For SVOD platforms, there is little room for growth during the global crisis.

Lower the prices

Lowering prices is rather counterintuitive in times of inflation. However, this is what Netflix has chosen to do by (finally) launching its ad-supported offer. The strategy is quite interesting because it offers an advantageous alternative to keep its customers who hesitate to terminate their subscriptions.


Even more exclusive content

Instead of a tariff offer subsidized by advertising, we can also imagine a content-based strategy. This strategy is followed today by all platforms that have in mind the adage “Content is King.” Except that this strategy has limits: those of insane budgets. Netflix announced an annual production budget of $17 billion in 2021.

In 2023, we will undoubtedly see arbitration aimed at streamlining expenses. There is little chance that this strategy will be sustainable. Bets will undoubtedly be made on the most popular content to build user loyalty: new seasons of well-established series to the detriment of new titles with an uncertain future.


Expansion

The last strategy is to aim for territorial expansion. This strategy requires investments that will probably not be welcome in 2023, especially since the countries to be conquered are generally not the most developed. SVOD platforms have focused on the richest countries as a priority.

The ROI (Return On Investment) will decrease with the number of countries.


Conclusion

After a period of rapid development during Covid, the SVOD industry is entering a period of strong consolidation:

  • competing platforms could be deemed redundant by consumers and disappear altogether
  • the dominant platforms have invested too much to disappear but will be forced to find ways to control their costs in order not to lose their subscribers
  • huge budgets dedicated to content production may be reduced because they are unsustainable in the long-term

 

Author: Pierre-Nicolas Schwab

Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)

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