Hollywood calls time on golden era of cheap streaming

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The era of cheap streaming is ending, as Hollywood’s largest studios turn the screws on customers with price rises that rival the expensive cable television “bundle” consumers began ditching for Netflix 15 years ago.

A basket of the top US streaming services will cost $87 this autumn, compared with $73 a year ago, as Disney, Paramount, Warner Bros Discovery and others have raised their prices in response to pressure from Wall Street to end the profligacy of the streaming boom. The average cable TV package costs $83 a month.

Americans had in recent years enjoyed the benefits of an extravagant era in Hollywood, during which media companies inundated audiences with more programming than ever at a fraction of the cost of traditional television.

Enticed by low prices, consumers rapidly cut the cable “cord” in favour of streaming services, with Disney+ attracting more than 100mn subscribers in only 16 months with a $6.99 subscription.

But privately, media executives warned of a looming “car crash” as they splashed out tens of billions of dollars on TV shows and films.

As interest rates have soared over the past year and a half, the crash has arrived. Media stocks have suffered a bruising correction as Wall Street grew impatient with the heavy streaming losses.

After watching their stock valuations more than halve, Warner Bros and Disney have shifted towards austerity, laying off thousands of staff and raising their subscription prices to curb billion-dollar streaming losses. Even Netflix ditched its basic $9.99 advertisement-free monthly subscription earlier this year, with new customers paying $15.49.

“From a business point of view, streaming was going to have to move in this way — the price point was going to have to go up,” said David Rogers, a Columbia Business School professor and author of The Digital Transformation Roadmap. “This was accelerated by the fact that we no longer have cheap debt to flood the market with streaming content.”

Disney’s latest price increases mark the second time it has raised subscription fees in less than a year, with the monthly cost of its ad-free service rising by $3 to $13.99 from October. Its Hulu service will also increase the price of its ad-free subscription by $3 to $17.99, but the two services are offered as a package for $19.99 a month.

There are cheaper streaming options, of course, but those come with another unloved feature of old-school TV: advertising. “We’re very optimistic about the long-term advertising potential of this business, even amid a challenging ad market,” said Bob Iger, Disney chief executive, this week.

He noted that the company had signed up 3.3mn subscribers to the ad-supported version of Disney+, which costs $7.99.

Iger also said that Disney would begin cracking down on password sharing — another move first taken by Netflix, which has successfully converted many freeloaders into paying customers this year.

Some analysts questioned whether the price increases will slow, or even reverse, Disney’s subscriber growth — especially at a time when Iger is also planning to cut budgets for streaming shows and movies.

“Does cutting back on content and raising prices work?” said Rich Greenfield, an analyst at LightShed Partners. “Can you raise prices another 30-plus per cent, reduce content spending and continue to grow subscriptions or maintain subscriptions?”

Rogers said there were ways to encourage subscribers to keep paying. “At a certain point you’ve got to watch out for people unsubscribing,” he said. “But [streamers] also have mechanisms for that — they can give a discount if you buy for a year rather than pay month to month.”

As a historic Hollywood labour strike continues, these entertainment giants also risk running out of new shows at the same time that they are wringing consumers for more cash.

“[Disney] is asking more and more of the customer . . . while the amount of new content on offer will likely decline,” said analysts at media consultancy Enders, who warned of “a negative spiral and real consequences” if the strike drags on.

“Lack of fresh content, particularly for Disney+, will increase churn,” they added.