Much of the focus of the imminent streaming war has been on consumers. Many believe consumers will be caught in the crossfire citing that the emergence of additional firms in the industry will minimize the amount of content a consumer can watch with one service, forcing the consumer to pay for multiple services rather than one or stick with a service that will have less content to offer than what the likes of Netflix, Hulu, and Amazon had just a few years ago. Consumers, they argue, will also see prices of individual subscriptions increase to pay for the production of more original content, pointing to Netflix’s recent price increase as evidence for this speculation. This school of thought has become highly popularized in the media with many uneasy about the future costs of streaming and speculating that in the future, consumers will have to pay more for less content as the upcoming streaming war progresses. However, despite the popularization of this argument, the notion that prices will increase as a direct result of the streaming wars is ill-founded. Not only will companies be forced to lower prices to compete in this crowded marketplace, but they will also be forced to produce original content without raising prices on consumers, contrary to popular thought.
Currently, the price of Netflix, Hulu, and Amazon’s streaming services are $13, $12, and $9 a month, respectively (prices are for most popular plans). Economics suggests these prices will only fall. As more firms enter the market, the likes of Netflix, Hulu, and Amazon will be forced to lower their prices or run the risk of losing subscribers to competing firms. Disney’s streaming service, priced at just $7 a month and due to be released in November, is already threatening the market. Sony and Facebook are planning to release separate streaming services that will both be free, paying for costs through advertisements and will essentially crowd out Hulu’s $6 a month plan that includes ads. Apple and AT&T are planning on entering the market as well, while NBC will release an ad-free streaming service free for its paid TV subscribers, further complicating things for Netflix, Hulu, and Amazon. With this industry crowded with firms vying for consumers’ attention, firms will be forced to engage in a price and content war as they compete for subscribers, resulting in falling prices, bundled services, and special discounts as a means to entice consumers. For consumers, such effects can only be beneficial, with content as a whole becoming cheaper.
Although economics may suggest that the addition of firms in the market will lead prices to fall, many point to the original content initiatives pushed by many streaming services as evidence that prices will increase, rather than decrease. As many companies push for more original content to offset the possible loss of other content, they will push the cost of producing additional original content on consumers. This argument, however, despite being partially true, does not hold up when considering the implications of pushing the cost of original content on consumers. While it may be true that many streaming companies are looking to increase their original content, they will not be able to place the costs of this content on the consumers given what happened to Netflix when they tried to do so.
In March (announced in January), Netflix increased its subscription prices to pay for additional original content and was hammered by both consumers and investors. During the second quarter of 2019, Netflix announced that it had shed domestic customers for the first time and missed overseas subscriber targets by 2.3 million. Netflix’s miscalculation will serve as a harsh lesson for the rest of the market, teaching companies that for original content, they must look elsewhere for cash or run the risk of being punished heavily by unhappy subscribers.
Another point pushed by those arguing that consumers will not benefit from the imminent streaming wars because less content will be offered per subscription. This point is partially correct. On one hand, it is true that every subscription, whether that be Netflix, Hulu, Amazon, or a newer streaming service, will offer less content than Netflix, Hulu or Amazon offered just three years ago. Netflix will lose the rights to The Office and Friends by 2021. Hulu will lose its rights to NBC Shows by 2024. Netflix, Hulu, and Amazon will all lose rights to Parks and Recreation. On the other hand, however, the increase in competition will also increase the amount of original content offered by each streaming service. Netflix is already increasing its original content. Disney is banking on its experience in the movie-making industry to help it produce original content for its streaming service. Apple has made deals with Oprah Winfrey and Kerry Ehfrin to star in its original content. Across the board, streaming services will be producing more original content than ever before and in the long run, the addition of this original content will offset and possibly surpass the lost rights to other content. Furthermore, while individual subscriptions may offer less content, the price of multiple subscriptions will only fall and in hindsight, maybe equivalent or less than one subscription today.
Another factor firms must consider in streaming wars is the threat of piracy. Netflix, Hulu, and Amazon were able to minimize the threat of piracy over the past couple of years by offering such a wide array of content for relatively low prices. However, with so many firms entering the market and the amount of content offered per subscription shrinking (at least in the short term), piracy will again be a threat for all firms in the industry with consumers ready to ditch streaming services if prices get too high for individual content. As a result, streaming companies will be more reluctant to raise prices and instead, be more willing to increase their content array and lower their prices.
Despite mainstream thought, prices of streaming services are likely to go down as the streaming war progresses. With more firms entering the market and the implications of rising prices, even to pay for additional content, will force firms to lower prices. Even further, with more original content and falling prices, consumers will be able to pay less for more content. Overall, in the short term, consumers will benefit immensely and end up winning the streaming wars. For companies, however, let the bloodbath begin.
Featured Image via AdWeek