Every month, streaming gets a bit closer to good old fashioned pay TV. Now seemingly every service pairs its scripted entertainment with lowbrow reality fare and live sports.
And, increasingly, the monthly prices for those services are making the glory days of the pay TV bundle seem that much more appealing.
Take Thursday’s price hike from Netflix, which raised the bar for its standard ad-free plan to an eye-watering $19.99 per month. Twenty dollars per month is a symbolic number, but it underscores how the model has shifted. Streaming platforms want to give users the option to avoid most ads … but advertising has increasingly become the big game.
When Netflix introduced its ad tier three and a half years ago, the standard plan was $15.49 per month, and the ad tier was $6.99. Now the standard plan is $4.50 more expensive, and the ad tier is $2 more. In other words, over time, the ad tier has become a better value.
That is reflected across the ecosystem, with services from Peacock and HBO Max to Disney+ and Paramount+ pricing their ad tiers at levels that are meant to underscore their value proposition.
If a consumer wants Netflix, Disney+, HBO Max and Peacock, they can pay nearly $75 for the ad-free tiers, or only $40 for the ad-supported tiers. For most consumers, it’s a no-brainer.
Publicly, executives at Netflix, HBO Max and other platforms say that they try to price their services on parity, meaning that they will make the same whether a customer chooses the ad-supported or ad-free tier. But advertising executives say that, thanks to enhanced targeting capabilities and new ad products, ad tiers have quietly become more lucrative than their ad-free counterparts. It isn’t consistent (it does depend on engagement and time spent, as well as the capabilities of each service), but it does incentivize these platforms to ever-so-gently nudge consumers in the ad-supported direction.
And some, like Amazon Prime Video, have been even more aggressive, turning ads on for everyone, and now asking users to pay $5 per month to avoid ads.
And as these platforms all lean into live sports, the advertising component becomes even more important (it’s worth noting that live sports tend to have ads, even on ad-free tiers).
“Streaming CPMs remain more than double those of cable and broadcast television on average,” Madison and Wall analyst Brian Wieser wrote in a March 26 note. “Prices have gradually compressed over time, but there has been no dramatic drop tied to the addition of new advertising supply from platforms such as Amazon Prime Video or Netflix.”
In fact, streaming services like Prime Video and Netflix have become centerpieces of TV’s upfront week, seeking to strike big deals with brands as they attempt to grow market share.
There’s only one streaming service of note that continues to shy away from ads on all content aside from sports: Apple.
A source familiar with the company’s thinking indicates there is no plan to add advertising in the short term, though they also added that they would “never say never.”
As the rest of the streaming universe leans into advertising tiers, and as consumers continue to face rising costs for entertainment as the price of everything from gas to mortgages goes vertical, it’s a trend that seems poised to continue.
The prices are going to keep going up, but they will go up in a way that makes that ad-supported tier a bit more appealing.
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