State of Streaming Snapshot: Pinpointing Streaming’s Pricing Pain Points
For an industry that’s prided itself for more than two decades on rapid growth—both on the technology front as well as in subscriber and viewership numbers—the recent conversations swirling in the industry about rapidly rising costs for delivery are a hard pill to swallow. Our research, in conjunction with Help Me Stream Research Foundation and longterm State of Streaming survey sponsor Tulix, shows that delivery costs are only one pricing pain point across the streaming industry.
Background
From the outset of the twice-per-year StreamingMedia.com State of Streaming surveys—the first survey report was released in early 2020, based on initial responses from late 2019—we’ve always asked respondents to rank their business and technology concerns.
These responses had been relatively consistent, but based on feedback to the Spring 2023 edition of the State of Streaming report—first presented as the Research Keynote in Boston at Streaming Media East 2023—we expanded the most recent survey to include questions around pricing pain points within the streaming media industry.
The final results will be presented at a Research Keynote for Streaming Media Connect on 14 November, but we wanted to provide a sneak peak at several consistent patterns have emerged around pricing in four main pain points: CapEx, consumer, content, and content delivery.
Please note that respondents aren’t required to identify themselves, unless they provide an email address to enter a prize drawing (in this case, winners receive one of two prizes: an Apple Watch or a $100 Amazon gift card). As such, we can’t share any identifiable details in the quotes throughout this article. But we expect a number of the quotes will nonetheless resonate in an industry that’s equally capable of spending vast sums on content while attempting to exceed—or, in recent days, at least shore up—revenue models.
CapEx
In the first two years, respondents indicated a significant and consistent concern around operational expenses (OpEx) with almost no concerns arising around capital expenditures (CapEx). To a certain extent, this was to be expected: With the growth of streaming rising rapidly throughout 2020, in no small part thanks to the extended lockdown and work-from-home scenarios that played out across North America and Europe, a greater percentage of the general population was embracing streaming in all its forms, from on-demand subscriptions to live breaking-news or live sports streams, the latter often buoyed by advertising revenue.
As streaming industry companies large and small scrambled to rapidly scale content and delivery supply to meet consumer demand during that phase, many turned to cloud-based media platforms or traditional content delivery networks (CDNs). While either option presented a lower upfront cost compared to the hefty CapEx spends necessary to create an in-house content delivery platform, it was clear even in late 2020 that OpEx costs might rise to an unsustainable level.
To be fair, though, even for companies that initially considered going the CapEx route, the reality of building out an in-house solution was often stymied by supply-chain bottlenecks that might delay scaling up by double-digit months.
Starting in the mid-2022 timeframe and continuing over the past three State of Streaming surveys, however, we’ve seen indications that CapEx concerns are rising across the board.
At the Streaming Media West 2022 research keynote, where Help Me Stream Research Foundation’s Tim Siglin presented his analysis of the survey’s responses, alongside sponsor Tulix Systems, CapEx was a key topic. At the time, Siglin noted, “The rise of CapEx concerns stemmed mainly from newer OTT providers that, having been successful at launching their nascent streaming service, were now shifting away from higher OpEx expenses to a less costly approach that included building out their own infrastructure.”
By the Spring 2023 Research Keynote, CapEx had replaced OpEx as the top-ranked business concern, followed closely by concerns around revenue generation, and Siglin noted that it was likely these newer OTT providers had “received higher-than-expected bills from their cloud service providers” and that they were using initial revenues to pivot towards building their own infrastructures.
Here in late 2023, that trend continues, with one respondent to the State of Streaming survey noting that their primary pricing pain point was “balancing sales growth with capital and operational expenses” while another stated “our primary issue is acquiring funds to create, build, and maintain an infrastructure dedicated to streaming.”
An additional wrinkle in all this is the need to stay up to date with the “purchasing and updating of technology assets” with an added goal of “reducing tech cost while still providing high reliability” of content delivery, which we’ll cover in a subsequent section.
Consumer Pricing Strategies
Another area we’ve seen both anecdotal and quantitative evidence of a pricing pain point is in the cost of consumer subscriptions for video-on-demand (VOD) content libraries.
On one end of the VOD spectrum is what we call AVOD or advertising-supported VOD content. AVOD comes in varying flavors, from the classic advertising ad-supported pre-roll and interstitials approach used by viewer-leading YouTube or the newest Free Ad-Supported Streaming Television (FAST) that includes live linear online “broadcasting” OTT.
On the advertising front, there’s a consistent thread through the pricing pain point responses in our Autumn survey, highlighting the shortcomings of advertising-based revenues: a lack of quality advertising to fill all the ad slots created by the proliferation of AVOD.
One respondent said “ad fill” was their greatest concern, noting that there are “fewer ad dollars to go around,” while another simply stated, “We need more advertisers."
Despite the fact that most viewers may feel that there are too many ads played in the middle of their streaming viewership, respondents to the State of Streaming survey argued that more advertising is needed.
“Platforms also limit ad time,” wrote one respondent. “We offer 12 minutes per hour, which challenges our ability to monetise and sustain our channel’s visibility.”
Another respondent called out revenue limitations around ad blockers “posing another challenge that affects both short & long videos & also articles without videos” while adding that “advertising partners should be taking this into consideration.”
An additional respondent said their greater challenges converged around “unsteady revenue from advertising and unpredictable viewership,” adding that they’re looking at the model of subscription video on-demand (SVOD) to remedy the shortfall in advertising revenue.
We’ll explore a bit more about FAST issues under the content delivery section, but it bears noting that there’s a bit of irony and cross-purposes on the AVOD and SVOD fronts, with FAST solutions moving towards SVOD, while many of the primary SVOD providers—from Amazon to Disney to Netflix to YouTube, along with a few other lesser-known SVOD platforms—are adding advertising to their lower-price tiers in a way that Hulu was derided for doing just a few years ago.
Even for live events, which were often a staple of premium ads, there’s a move towards subscriptions, although it seems to be as much a technical issue as a revenue one. A respondent noted that it’s “hard to insert ads in live news streams so we use subscriptions.”
At least three leaders in the SVOD premium over-the-top (OTT) content—Apple, Disney, and Netflix—raised rates recently, and their historical price increases are far outpacing inflation.
For instance, the cost of a monthly premium ad-free Netflix SVOD subscription in the US is now more than 65% higher than it was in early 2019. The company also replaced its Basic subscription tier with an advertising-based tier it calls “Standard with Ads” in April 2023.).
Below we lay out Netflix price increases for Basic, Standard, and Premium plans from mid-2019 to October 2023.
- January 2019: Basic $7.99, Standard $10.99, Premium $13.99)
- May 2018: Basic $8.99, Standard $12.99, Premium $15.99
- October 2020: Basic $8.99, Standard $13.99, Premium $17.99
- January 2022: Basic $9.99, Standard $15.49, Premium $19.99
- April 2023: Basic disappears, replaced by “Standard with Ads”
- October 2023: Standard with Ads $11.99, Standard $15.49, Premium $22.99
The latest Netflix price increase comes immediately after the company announced a significant uptick in subscribers in Q2 2023 (up 9 million for the quarter) thanks to its crackdown on password sharing, while at the same time decreasing its original content spend from $19 billion to $13 billion for the year, due in large part to the writers’ strike that ended after 148 days on September 2023. (The SAG-AFTRA strike stood at 105 days at the time this article was posted, with official talks between guild leaders and the studios ongoing.)
Apple has an even greater percentage rise for its Apple TV Plus (+) OTT service. Launched in 2019 at $4.99 per month, the monthly price rose to $6.99 in October 2022 and shot up to $9.99 in October 2023. For those keeping track, that’s at 43% in one year’s time and over 100% increase since 2019.
With prices rising across the board for consumers, from gas to groceries to going out to eat, the reality of a 65-100% price increase for a single streaming service will likely give consumers pause. And while it may not force viewers to abandon Netflix, compared to possible abandonment of competitive premium OTT offerings, it heightens the need for a way to watch content from various premium OTT platforms in a single location. That brings us back to the bunding discussion that cable cord cutters have been actively looking to avoid.
On the live OTT front, there’s an added concern: the right viewer and programmatic content mix at the proper time. As one respondent wrote, “Getting eyes on the screens at the right times” is a key goal, adding “we just don't have the draw or the appeal to the right crowd sometimes.”
Content Costs
This pricing pain point breaks down into two distinct segments: third-party content licensing and exclusive content creation.
On the content-licensing front, concerns around this pain point were the second highest of any topic, ranging from concerns about franchise fees, licensing, and royalties. Sports topped the list of content licensing types followed by exclusive VOD content.
Speaking of exclusive content, respondents told us they had concerns about what they termed “content freshness,” which included creating or licensing new content. The reason for fresh content is viewer retention and engagement.
On the flip side, respondents also said that the lack of quality content distracts viewers. One respondent said “receiving poor quality creative content” was their number one concern.
Challenges around revenue from exclusive content isn’t necessarily limited to high-end, premium OTT content. Several respondents noted the challenge of “custom content creation for Reality TV and DocuDrama/Documentary” content.
Additional concerns around “fresh” content centre on a nebulous mix, with the “taste of audience and geographical and financial status of audience” affecting revenue.
Conversely, there’s some content that while old, appears to be evergreen. Recent examples of legacy content licesning by Netflix includes the NBC show (now owned by Comcast) Suits and the HBO series Band of Brothers that have experienced an uptick in viewership based partly on current events.
Another aspect of custom content that repeatedly was raised as a pain point was the very short shelf life of news.
“As a very local news organisation,” one respondent wrote, “getting people's attention to local issues amid all of life's distractions is a challenge.” Another said that “the ever-changing algorithms and policies of social media platforms with regard to news content” limited their ability to offer custom content as a viable revenue stream.
A third respondent noted that many news organisations can’t scale their content (and subsequent revenues) beyond a local market. “Our content is hyper-local. Thus we mainly rely on local economy as opposed to national income,” they wrote.
Content Delivery
While the adage is often true that companies pass price increases on to the consumer, as one content delivery company’s executive noted, “The cost of everything from bandwidth to the price of batteries has risen” from last year’s prices.
When even the cloud providers are saying that they’re feeling the pinch of higher prices, with the added wrinkle of higher borrowing rates at a time when they need to be investing in their own infrastructure, it’s little wonder that we’re seeing the consolidation of CDN offerings begin to accelerate.
StackPath was first to the exits on its CDN business on August 24, followed on October 10 by Lumen (formerly CenturyLink formerly Sprint formerly Qwest). In both cases, the companies sold a portion of their customer base to Akamai.
For its part, StackPath noted its path forward is towards edge computing. The company stated it is committing “its entire focus to being the industry’s best cloud computing platform built at the internet’s edge” instead of splitting time between edge compute and core CDN functionality.
“With this decision, StackPath CDN and Highwinds CDN services will cease operations at 12:00 a.m. Central (UTC-6:00) on November 22, 2023,” a press release from StackPath noted, adding that “Akamai Technologies has acquired select StackPath enterprise customer CDN contracts.”
Lumen also stated its goal is to shift focus towards what it calls “cloudifying its network” while dropping CDN services.
“Much of our core work involves simplification of our business," said Lumen’s SVP of Business Development, Bob McCarthy, in an October 10 press release. "The sale of select Lumen CDN service contracts enables us to apply even more focus on disrupting the telecommunications industry by cloudifying our network.”
This consolidation may lead to supply chain difficulty for smaller content owners seeking to monetise via FAST or other OTT models. Below are a few examples of pain points around FAST costs that respondents to the State of Streaming Autumn survey noted.
Calling out the realities that economies of scale provides to larger platforms, one respondent stated that “delivery costs relating to streaming FAST channels is very high and difficult to equal on platforms that are small.”
Another respondent noted that monetisation is a challenge when approaching the household names in OTT service, stating that “larger streamers are less cooperative when it comes to launching channels,” calling out a list of both OTT services and smart TV manufacturers.
Or as one respondent put it succinctly when talking about the large OTT platforms: “Competition lowers prices as they are worldwide organisations.”
Conclusion
The question of whether or not to raise prices on SVOD or OTT customers as a way to absorb higher delivery costs remains a significant dilemma in today’s fractured media landscape.
Lest we simplify the pricing pain point equation too much, though, we should also note that, besides the four major pricing pain points we’ve touched on here—CapEx, consumer, content, and content delivery—respondents provided feedback on lesser pain points: production costs, labor shortages, and potential money “left on the table” in the slow move online by traditional broadcasters.
All of these pain points share a common theme. As costs increase, we anticipate the industry will experience a wave of consolidation not dissimilar to the one we saw in the very early days (circa 1999-2001) and during the Great Recession (late 2008-mid 2009). The major difference this time around, though, is that it likely will be major players consolidating efforts, in much the same way as we’ve seen movie studios and broadcasters integrate their offerings together.
The market opportunity here, if anyone is paying careful attention, has less to do with marquee customers and more to do with the bread-and-butter OTT and FAST channels that still want to publish their content at reasonable subscription prices. They can only do this, though, if publishing platforms from CDNs to OTT pure plays to smart TV manufacturers innovate on ways to lower their overall costs—and pass that savings on to the up-and-coming content owners with niche but loyal audiences.