It's getting more expensive to watch your favorite streaming shows — especially if you want to watch them without commercials.
Ad-free streaming plans have become a primary target of price increases as media companies like Netflix (NFLX), Max (WBD), and Amazon (AMZN) raise the costs of their respective offerings — all while keeping the prices of cheaper, ad-supported options unchanged.
It sounds counterintuitive at first. Why would streamers want to raise the costs of premium tiers at a time when consumers are becoming more choosy about the services they subscribe to? Wouldn't they rather users sign up for more expensive options than cheaper ones?
Not necessarily, experts say.
"When you want to optimize revenue, you would actually increase the price of the ad-free tier because even if users turn to the ads, you're still making the same money," said Marc DeBevoise, who helped launch CBS All Access and now serves as CEO of streaming tech company Brightcove.
DeBevoise explained it all boils down to the additional ad revenue per user. Added on top of the subscription price of the lower tier, the total revenue per user will typically end up matching the premium option.
That's why companies may decide to increase ad-free pricing since they want to be "economically differentiated in the two plans," DeBevoise said.
"You want to have the ad-free tier effectively make you more money per user per month, if possible. So I could see [companies] tweaking the pricing for that reason," he continued. "These are revenue maximizing opportunities, not necessarily trying to push more subscribers [to the ad tier.]"
Earlier this week, Warner Bros. Discovery (WBD) announced it will raise the prices of its ad-free plans on its streaming service, Max, by $1 each to $16.99 for ad-free and $20.99 for its “ultimate” tier, which allows four concurrent streams and 4K streaming options. The price hikes come just ahead of the second season of Warner Bros.' blockbuster "Game of Thrones" prequel, "House of the Dragon," which is scheduled for release on June 16.
Prior to Max's increases, Comcast's (CMCSA) flagship streaming service, Peacock, announced price hikes that will come in July, just ahead of the 2024 Paris Olympics, after it upped prices for the first time last summer.
The streamer plans to raise prices by $2 for its Peacock Premium plan and mostly ad-free Peacock Premium Plus tier to $7.99 and $13.99, respectively.
The timing of both companies’ respective increases is important.
"You seek to raise the prices in two types of moments. One is when you know folks don't want to cancel and you have a large, full-ordered audience that wants to stick around for the amazing things you're about to deliver," DeBevoise said, referencing Peacock's upcoming Olympics coverage and Max's "House of the Dragon" premiere.
"The other is when people are not paying attention and just let their subscriptions roll on their credit cards," he added, noting many price adjustments are often tested on a smaller cohort of users before platforms roll them out to a larger subscriber base.
Virtually all of the major streaming companies raised the cost of their respective services throughout the course of last year amid greater profitability challenges and a push to reaccelerate top-line growth.
But subscribers aren't necessarily sticking around. According to the latest data from consumer measurement platform Antenna released at the end of May, US subscriber churn — or the act of paying users abandoning their streaming plans — stood at 4.6% in April, higher than the 4.2% seen in the same month last year. Still, the data was well off of the records reported at the start of the year in January, when overall churn came in at 6.1%.
In terms of whether or not there will be a ceiling on price hikes, DeBevoise said media companies are still "figuring out the audience," especially as the content bundle consistently shifts for each streamer over time — whether it be tentpole event coverage like the Olympics or the exclusive rights to a sports game.
"Ultimately, they're trying to find a very profitable model," he said. "The real question will be exactly what price. You're going to see that continue to be tested."
That means more price hikes will likely be on the horizon.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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