Pricing of Video Streaming Services

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Table of Contents

Background
Netflix
CBS All Access
Amazon Prime Video
HBO Now
Summary and Conclusion
References

Background

Video streaming service providers are online platforms that allow for streaming, and sometimes downloading of films and television series for watching by individual consumers or households. Users pay for the service on a subscription basis, with a set monthly fee which provides access to a catalog of media. Subscriptions plans differ among companies, having either varying access to content, changes in quality or additional features depending on how much a consumer pays. Streaming services differ from other media providers such as cable television, by offering viewers the choice of what and when to watch content. Companies acquire licenses for existing media or create their own films and television shows that the user can browse, select, and watch at any given time on most devices that have an internet connection (Zimmerman, 2019). While an internet connection, either broadband or mobile, is required to use streaming services, the wide availability and affordability of internet in modern day makes such platforms more popular due to the freedom and mobility that they offer in comparison to stationary and highly expensive cable television.

Netflix

Netflix is synonymous in modern popular culture with video streaming, largely being the first platform that developed this type of business model in practically any entertainment sector. While, Netflix once held a monopoly with 91% market share in the sector, it now holds approximately 19% (due to massive competition) despite having a consistent addition of new subscribers, having 167 million users globally and 60 million in the U.S. (Clark, 2020). In 2017, Netflix announced slight price changes, with the basic plan (standard quality only) at $7.99, $10.99 for Standard, and $13.99 for Premium plans. The only differences between the plans are quality of streaming and number of devices that can watch at the same time. The price hike did not affect subscriber growth and continued to demonstrate an upward trajectory while providing Netflix a significant jump in operating profits from $154 million to $245 million (Poyar, 2020).

Netflix stands out from competition by not having advertising from outside marketers nor having differently priced tiers of content. All customers, no matter the plan have access to the full library. Netflix uses subscriber fees to secure licensing agreements, totaling 15.3 billion in expenses, consistently negotiating new deals. Netflix is a data-driven company, utilizing complex analytics to gauge consumer interests both in certain titles as well as genres, and comparing this to competition. The data is extremely detailed ranging from times and dates when content is watched to types of devices and zip code, as well as behaviors such as searches and browsing activity on the platform. This is carefully analyzed before engaging in negotiations for licensing deals (Patel, n.d.). Netflix is also known for creating its original content series that are unique and not built on existing franchises like most new content from other streaming services, a strategy which has proven to be highly successful financially (Spangler, 2020).

Due to Netflix’s early start in the space, it has a broad appeal to a wide range of consumers. It is particularly popular with younger generations aged 18-24 as well as a large portion of adults 25-39, also popular with families. (Yang, 2017). The Netflix platform is also well-developed and adapted for mobile allowing to watch on the go, offering high quality ultra-HD content for those who enjoy it, while also offering a tremendous library of choice for every genre, for an affordable subscription price. The Netflix platform which allows to continuously watch shows, even those that just released, in one sitting creating the phenomenon “binge watching” also makes it appealing to a wide range of consumers (Kay, 2019). Overall, out of all streaming platforms, Netflix can be considered the most versatile, trendsetting, and, in some ways, more affordable for the content offerings it has.

CBS All Access

CBS All Access is a North American streaming service which allows for live programming from a wide range of CBS stations, news and late night shows, sports such as the NFL, and a number of properties to which CBS owns access to such as Nickelodeon, Comedy Central, MTV, Smithsonian, and Paramount Film collection. It also owns back catalogs to a number of popular television properties such as The Big Bang Theory, Star Trek, CSI: Miami, and Twin Peaks. CBS has two subscription plans, one for $5.99 a month with limited commercials, and the other for $9.99 a month without commercials and the ability to download videos to watch offline.

Unlike Netflix, CBS All Access does not offer ultra-HD or HDR quality for any of its content, even newest additions. However, having a widespread catalog of older shows, most of which were produced by CBS studios, it does offer many older shows and movies in HD quality that cannot be found on other streaming platforms which also license this content. One prominent example is the Star Trek series which have been remastered. It also produces very little original content, and the few shows it does, are spinoffs of its existing properties. However, back catalogs and latest viewing programs from cable television which CBS offers distinguish it from competitors.

CBS All Access has one of the cheapest subscription offerings with commercials, other than Hulu. Meanwhile, its regular subscription is also slightly below competitors currently. This occurs for two reasons. First, unlike Netflix, CBS All Access does not invest billions into original content. The majority of its library comes from its own studio produced catalog, which all belong to the parent company ViacomCBS, and require no licensing expenditure. In fact, CBS rarely holds unique rights to any property and continues to license them out to competitors for additional income. Second, CBS is unable to boast such large subscriber numbers, with only approximately 4 million users in the U.S., experiencing gradual growth. It is seeking to be appealing to market segments through its pricing that is affordable, both more affordable than competitors or regular cable television while having both offerings. The lost income on the basic subscription is supplemented by commercial advertisement revenue.

CBS All Access offers immediate high-quality versions of its latest prime time content, which is appealing for those that do not have a TV antenna or cable or dislike the consistent commercial disruptions of regular television. It also offers original and often better quality of content than when it is licensed to other platforms. Both the cheaper and more expensive plan have access to the same content at the same quality, with the only difference being the presence of advertisements. This differs from the Netflix approach which by principle, since its inception, has refused to use advertising on the platform, even for its own shows. The difference may stem once again from the fact that CBS is inherently a television studio company which relies heavily on advertising for profitability. The price level difference for CBS All Access users only affects the experience factor (commercial disruptions) but does not touch the underlying content one is trying to watch. It is likely that if versioning was not allowed and CBS could not offer differing plans, the company would still remain on the low end of subscription costs at $8.99 or lower. This is due to its own back catalog and lacking the need to invest in original content as well as being more appealing to consumers who are seeking to view live and syndicated television through a streaming platform at an affordable price.

Amazon Prime Video

Amazon Prime Video is an online video streaming service that is owned and operated by the technology company and online marketplace Amazon.com Inc. Similar to other platforms, users are offered access to a library of television shows and films, as well as original content produced by Amazon, following the footsteps of Netflix. However, similar to other online marketplaces, users have the ability to purchase or rent newer movies or television shows on-demand. The service also offers subscriptions to purchase live television content from other studios such as HBO, Cinemax, and Showtime for an additional price, similar to a cable package (Csathy, 2020).

Amazon Video takes a unique approach to its pricing, bundling it with its primary overarching service of Amazon Prime. Its most popular plan is ‘Prime monthly’ for $12.99 includes access to Prime Video but also features such as unlimited music streaming, digital storage, and e-book library along with free fast shipping from its online retail marketplace. There is the Prime annual package for $119 a year, that offers the same features but with a 36$ discount rather than paying every month. Finally, there is a standard rate of $8.99 that offers just access to Prime video and nothing else. The content or quality does not differ among the plans when it comes to the Prime Video itself (Amazon, 2020).

However, it is a strategy of bundling services that Amazon is known for. Due to the popularity and relevance of the online marketplace, Amazon Prime is one of the most popular subscriptions, at over 150 million global users. Prime’s success in remaining competitive came at the expense of larger profit margins. Instead, it focuses on creating a brand customer loyalty with various Prime benefits that come with the subscription (Csathy, 2020).

From a survey conducted on Amazon Prime consumers, streaming video is ranked as the highest valued product, followed by the benefits of flagship shopping and shipping. By bundling the services, Amazon creates a value package for the consumer, not just in advertising, but realistically giving users much more for the price than most competitors. Therefore, a user that came for the video streaming service, is also offered other entertainment options as well as now being able to enjoy free shipping options and discounts (Campbell, 2020). That may incentivize people to not only use Amazon Prime Video but the marketplace as well. Meanwhile, those who use Amazon Prime primarily for shopping have access to video streaming and have the incentive to purchase one of the newer non-free movies or episodes. In the end, the bundling benefits Amazon in the long-term of creating an ecosystem of user services with various points of profitability. The accessible pricing points and benefits creates a scenario of conditioning prices on purchase history since consumers are willing to pay more for the favorability of features, especially when there is something available for everyone which helps to differentiate customer segments. There has always been a stable demand for the core services such as two-day shipping, but with Amazon Prime video, there is something new in terms of services and sector which further enhances the company’s product offerings bundle.

HBO Now

HBO Now is a direct to consumer video on demand service that allows access to the premium content available on the cable television network HBO. Access to HBO Now is either bundled with the cable package or available on its own for a current price of $14.99. The service currently has approximately 5 million paying subscribers. Owned by the media corporate giant Time Warner, HBO Now offers access to a library of original series and films from the HBO network as well as content from content partners such as Warner Brothers, 20th Century Fox, and Universal Pictures. It does not offer the live streaming capabilities of the HBO Go platform that is offered to cable package owners (). At this price point, HBO Now remains the most expensive video streaming platform out of all its competitors.

Although anecdotal evidence suggests that HBO Now has been accused of overcharging for its services, its pricing strategy is appropriate both to its positioning and purpose as a platform. First, HBO positions itself as a premium service all around. It is one of the most expensive cable channel additions and takes a similar approach with its streaming service which on a month-to-month basis costs about the same. HBO Now was not a service created necessarily to compete with cord-cutter services like Netflix but simply a capability that is available to those who want to watch HBO content without restrictions of cable or broadcasting (Barr, 2015). Furthermore, HBO, both the cable network and the video streaming service differentiate themselves not for the quantity of content, but for its extremely high quality in every aspect: visual fidelity, storytelling, and award-winning productions. Only in recent years have other platforms began producing similar content. However, the premium HBO brand behind certain content such as the pop culture favorite Game of Thrones creates this segment that makes HBO Now stand out.

Comparing HBO and Netflix is difficult. Despite having much less subscribers than Netflix, HBO Now is not a standalone service. The premium content requires the help of cable and satellite providers to be successful. The parent company of HBO, Time Warner relies heavily on its existing relationships with cable providers. The HBO Now platform is a middle-ground compromise between traditional cable and the future of streaming, but ultimately allows the company to capitalize twice on existing content. However, the price point is unlikely to cost less than it is currently unless there is a radical shift to how consumers receive television (Barr, 2015). Despite a mass audience having transitioned to streaming services, a significant amount of American households still buy and watch cable television, and many of the most popular shows still air on television before being transitioned to streaming, with Netflix and Amazon original content being essentially the only outliers. This is why HBO Now will remain a high-priced premium service and this target audience focus does not require it to use versioning or subscription plans utilized by other platforms.

Summary and Conclusion

The popularity of streaming platforms came largely due to the “cord-cutter” movement, a pattern of viewing that cancel multichannel subscription selection or cable packages, in favor of other types of viewing, one of which is digital streaming. Cable television has historically been considered expensive, while streaming services are often both cheaper and more convenient (not having to rely on broadcast schedules and having control over content watched). Despite price hikes in recent years on the most popular platforms, streaming still remains cheaper than cable, since cable companies also raise prices as well as commonly require a contract and installation fees. From a consumer standpoint, one saves money on these as well as other broadcast fees and package fees such as for sports that the household may never watch. With streaming, a consumer can have control over what they sign up for, picking and choosing between which platform has the best shows for their interest as well as many services now offering live television as well. Often, having several streaming service subscriptions ends up costing less than the cable TV package per year, even with broadband internet costs included (Snider, 2020).

It is evident that each video streaming service approaches pricing differently. Netflix has mid-range pricing with very gradual hikes each year to finance its licensing and content creation with all content available to users. Amazon follows similar pricing mostly but focuses on bundling additional products and offering purchases of outside content for consumers. CBS All Access is a more affordable approach, focusing on wide availability with a plan having advertisements and live television offerings. Meanwhile, HBO Now is the premium offering that has a limited catalog and but has high quality content. Each pricing strategy meets both the financial requirements (profit margins) of the company as well as targeting the market segments that are most likely to sign up for the service, allowing for continuous growth of subscribers, even with rising competition in this sector.

References

Amazon. (2020). What is Prime Video? – Amazon Prime insider. Web.

Barr, M. (2015). HBO Now is both too expensive and fairly priced depending on who the target audience is. Forbes. Web.

Campbell, P. (2020). Pricing perfection? Tearing down amazon prime’s pricing. Web.

Csathy, P. (2020). Amazon Prime Video: The stealthy, ominous streaming force. Forbes. Web.

Clark, T. (2020). Netflix is still growing wildly, but its market share has fallen to an estimated 19% as new competitors emerge. Business Insider. Web.

Kay, P. (2019). What Netflix’s approach to audience personalisation can teach SMEs about content strategy and demographic targeting. Web.

Patel, N. (n.d.). How Netflix uses analytics to select movies, create content, and make multimillion dollar decisions. Web.

Pino, N. (2019). HBO Now: everything you need to know about HBO’s standalone service. Web.

Poyar, K. (2020). Netflix quietly perfected their pricing. here’s what you can learn. Web.

Spangler, T. (2020). Netflix projected to spend more than $17 billion on content in 2020.Variety. Web.

Yang, L. (2017). A look into a new target audience: Netflix subscribers. Web.

Zimmerman, B. (2019). Streaming services and the war on tv. Forbes. Web.

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