Netflix is testing new subscription options that could result in higher prices for some subscribers. It's not the only OTT service planning to raise prices. Netflix is likely looking to stem account sharing for its service, but there are other reasons for OTT providers to be raising prices. More and more services are launching on the market, with a growing range of features, as the market matures. A positive side effect of the latest round of price increases: more room on the 'low end' of the market for even more new services.
Netflix has been testing in several European countries a new top tier, with access to 4K and viewing on four screens. If the offer is made permanent, this would mean a reduction in the number of screens on the existing plans (from 4 to 2, and 2 to 1). Such a change makes account sharing less attractive, forcing customers sharing a subscription to take the more expensive option. This is essentially a price increase for existing customers.
OTT price hikes
Several other (American) OTT services have announced price increases as well:
- YouTube TV (US, an OTT service with live TV channels) increased its price to USD 40 per month from USD 35. It also added more channels to the package.
- YouTube Red (originals, no ads) got a new name, YouTube Premium, along with an increase in price to USD 12 per month from USD 10. It also includes YouTube Music Premium (USD 10 per month).
- Amazon Prime, the delivery service with extras such as Prime Video and Prime Music, increased in price in the US from USD 99 to USD 119 per year. The last increase, from USD 79 to USD 99, was in March 2014. Amazon is reportedly planning to spend USD 6 billion this year on original content.
- Sling TV (one of the first stand-alone OTT services, launched by satellite provider Dish Network as a 'skinny bundle') increased its basic plan from USD 20 to USD 25 per month. At the same time, Sling introduced a la carte channels and PPV options.
- DirecTV Now (stand-alone OTT service from AT&T's satellite TV arm DirecTV) increased its monthly price by USD 5. This came shortly after the launch of the new skinny OTT service, AT&T Watch, which costs USD 15 per month.
- Sony increased the price of PlayStation Vue (linear OTT TV service in the US) by USD 5 per month.
The reasons for raising prices are multiple - not just inflation and the often noted rising costs of content. We list here some of the most important:
- Inflation. Sometimes rather than small annual increases, operators wait and make one large increase after a period of time.
- "Because they can". The economic upswing gives providers a sense of pricing power. Especially services forming a core part of the company's strategy (like probably YouTube TV) are ripe for higher prices in order to bring forward the breakeven point.
- Higher costs for content production. Pay-TV operators have been complaining for years about the rising costs of programming. While the extent of this is questionable, the quickly growing budgets of Netflix and Amazon, which are not so bothered by financial discipline, and growing price tags for sports support the trend. At the same time, the pricing power of traditional broadcasters is weakening in the face of the growing popularity of on-demand services. If operators and broadcasters can't reach agreement on carriage terms and a channel disappears for a time, this is a bigger problem for the broadcaster than the pay-TV provider. This is a phenomenon happening in multiple markets, not just the US, with France a notable case in the past year. In short, this points more to falling prices.
- Broader services, with more channels, content and features, justify higher prices. This is valid for services such as Amazon Prime, Sling and YouTube TV.
- Misuse. Account sharing is probably the most important reason for Netflix to be considering changes to its subscriptions, in order to reduce the number of screens each subscriber can use without paying more.
Commercial positioning
While prices are increasing, the offer is also expanding, with new services and options (like at Sling) as the OTT sector matures. A positive side effect is there is more room at the low end of the market for new services to emerge. New services such as Disney's planned direct-to-consumer offer will have more room to determine the optimal price, or choose to introduce multiple subscription tiers.
Operators are notably not giving up on OTT services either. While some may have stopped and are relying on TV Everywhere apps, such as KPN (Play) and Verizon (Go90), others are introducing new offers, like Sony's Film1 and Sky's expansion to new countries. Germany's Freenet is also positive about its Waipu.tv online service.
A stand-alone OTT service (not to be confused with a TVE service tied to a pay-TV subscription) is a mix of both offence and defence, as shown by Dish and AT&T. It can compensate for the decline in traditional TV subscribers, but then faces limits on how high the price can go. There is more room for offence, as the service expands the potential target market and takes the provider beyond its traditional footprint.
