‘Cable cutters’ wonder whether cheaper alternative is over

In January when Netflix announced it would be raising its US and Canadian subscription prices, Jennifer Hamra had a question: “Are the streaming prices going to be equivalent to my cable prices?”

For many streaming services like Netflix, Hulu, HBO and Apple had meant an end to costly cable deals. A new generation of “cable cutters” eagerly dropped their cable packages and reached for a cheaper alternative that also offered greater flexibility and choice. Now many are wondering if those days are over.

Netflix raised the price of its most popular plan, the middle of three subscription tiers, from $14 to $15.50 a month. Wall Street responded favorably to the news and Netflix’s stock price rose 3%. The streaming company has a US and Canada subscriber base of about 75m, with a total of about 222m subscribers worldwide. More money from subscribers, even just an extra $1.50 per account, would bring an extra flood of cash to the company.

But some Netflix subscribers found the news unsettling. The company had last increased its price in October 2020, raising the price of its most popular subscription plan from $13 to $14.

“I don’t recall them increasing the price so frequently,” said JHamra of Detroit, Michigan, a mother of six and Netflix subscriber for 15 years. “Now I’m concerned.”

Hamra said that she cancelled her cable subscription in January of last year as her family sought to cut back on bills. Cord cutting has saved her $100 a month, but the cost of subscribing to three streaming services – Hulu, Netflix and Amazon Prime Video – is starting to rack up.

“It’s starting to feel like it’s defeating the purpose of getting rid of cable,” Hamra said.

In surveys, cord cutters have indicated they felt like subscribing to streaming services over cable got them a better deal. But the cost of streaming is rising: Subscribing to the standard plans of Disney+, Hulu, Netflix and HBO Max can cost over $50 – about the same price as some basic cable plans.

Analysts who are closely watching the streaming wars say that subscribers should get comfortable with price increases as streaming services start changing their business models.

Netflix’s recent price increase is a signal that it will turn to existing subscribers to help grow revenue, rather than clambering to get new subscribers. Netflix is already the most popular streaming service, and its subscriber growth is slowing. The company’s recent price increase made it replace HBO Max, which is $15 a month, as the most expensive streaming service.

Cost-savvy Netflix subscribers may be tempted to turn to cheaper streaming services like Peacock or Paramount+, whose most expensive plans cost $10 a month, but analysts say the prices subscribers see now are likely to only increase over time. For now, those newer streaming services are offering consumers a bit of a deal as they try to grow their subscriber base.

Take Disney+, which launched in 2019 and currently costs $7 a month, or $14 for a Disney+, Hulu and ESPN+ bundle. Along with Disney classics and Marvel films, the streaming platform has debuted exclusive content like the Mandalorian and Peter Jackson’s Beatle documentary Get Back. The platform now has 130m subscribers, and the company is aiming to get to at least 230m subscribers by 2024.

“They chose to price low so they could grab subscribers quickly and make the barrier to trying it very low,” said Berna Barshay, an analyst with Empire Financial Research. “That’s worked for them. I wouldn’t expect to see Disney+ stay a sub-$10 service forever.”

Barshay said all the streaming services have shown they are willing to absorb some losses to get on new subscribers – Netflix took on debt as it was building its streaming library and making original content – but ultimately, the streaming wars will not last. Last year, a poll found that the number of streaming services people subscribe to increased from 3.9 to 4.5, but Barshay and other analysts expect that most people will subscribe to a maximum of four services.

“Right now, everybody’s jockeying for a position,” Barshay said. “As these markets mature, the growth is going to have to come from not so much adding new customers, but from retaining the customers you already have and putting price increases on them.”

Streaming companies know that even if the price of streaming goes up, consumers are unlikely to go back to cable anytime soon. The number of Americans with cable has been plummeting – major TV events like the Superbowl and the Oscars have been seeing their lowest ratings ever – not only because consumers say they are saving by cord cutting, but because streaming has changed the way Americans watch shows and movies. Viewers are no longer used to watching advertisements that take up 15 minutes of programming in each hour. Plus streaming allows TV viewers to watch shows on their own time and on-the-go.

The slow death of cable has mostly been a tragedy for media companies who once reaped huge profits from both cable subscribers and advertisers. It is estimated that the continued decline of cable subscriptions will bring a $25bn drop in revenue, excluding advertising revenue, for major cable networks like Disney, Fox and NBCUniversal. These same companies have been pivoting to streaming over the last few years.

“They basically created a monster that grew too big for them to kill,” Barshay said. “You look to Gen Z and you have a whole generation that doesn’t even know how to use a cable remote. These aren’t cord-cutters, they’re cord-nevers.”

Hamra said that she is unlikely to cancel any of her streaming services this year but will consider cutting one if the cost of streaming continues to increase. But even with the higher costs, she said her family will never go back to cable.

“I don’t like the commercials. I don’t like having to wait for the next episode. I like that I can binge-watch, and I can watch on my own time,” Hamra said. “With the streaming services, it allows me that flexibility.”

Plus, even if she cancelled one of her existing subscriptions, Hamra said she would still feel like she has a plethora of options.

“It reminds me of the library where there’s no way you’re going to be able to read every single book,” she said. “There’s no way I’m going to be able to watch every single show.” The Guardian