Everyone In Streaming Is Raising Prices...Why?
The Most Important Story of the Week – 13-September-2021
The last time I wrote about price increases was last November, when Netflix decided to up their monthly prices by $1. At the time, I thought this was big news because it really signified a change in focus for Netflix. The news that Hulu will raise prices by a similar amount isn’t as groundbreaking, but is a key sign that all of streaming is moving from growth to maturity. So let’s make that...
Most Important Story of the Week - Hulu Raises Prices by $1
The most obvious question: Is this a smart move?
While pricing is hard, especially before a product launches, the math is easy: if the percentage decrease in sales is smaller than the price increase, you do it. In other words, if you increase prices 16.6% and 7.7%, but fewer than 16% and 7% of customers stop subscribing, good call! The risk is that raising prices is an opportunity for customers to reevaluate their subscriptions.
Notably and unlike Netflix, Hulu has struggled to increase prices in the past. The Hulu-with-ads price hasn’t increased since 2015 and the price with-ads was actually cut by Disney in 2019 to drive growth. And in the past they’ve relied on Black Friday super deals to grab subscribers. (Sometimes as low as $3 per month.) Presumably, Disney feels stronger about the state of Hulu now. Or the Disney bundle is really doing all the work, and this makes that deal look even better. (And yes this follows price increases on ESPN+ and Disney+ earlier this year.)
It also speaks to the desire of traditional media companies to, you know, make money. An important part of any business (though not lately in the US driven by unicorns and meme stocks) is generating positive cash flows. This hasn’t been the case in streaming, where most every enterprise has lost money most years. (The one counter is Netflix, which made about a billion dollars in free cash flow last year, when all production was shut down.) Disney itself said breaking even on streaming may take years. They’ve also said that, as of last quarter, Hulu had generated an operating profit for the first time. Clearly Disney thinks this price hike could lead to more lasting profitability.
The last fun question is: whither Netflix?
Specifically, Netflix last announced a price hike in November of last year. Will they repeat that feat this year in anticipation of a strong Q4? I could be convinced either way. On one hand, announcing an annual price increase will rub some customers the wrong way. They might notice annual increases, whereas a 15-18 month cycle throws that off a bit. However, without a price increase, and potentially stalling customer growth, revenue and profit growth in the US could stall. So a price increase could continue the streak of double digit revenue growth for another year.
An Update: Apple App Store Stories - Epic and Apple Win the Lawsuit
A judge made a ruling in the Epic Games (maker of the Unreal Engine and Fortnite) and like Solomon, she cut the baby in half. Epic Games (and other developers) can link to other payment systems outside of Apple. The judge decided that prohibiting that is anticompetitive. She also said that, while Apple controls 55% of the market and makes obscene profits, it isn’t a monopoly, which is a win for Apple.
As others have noted, this is small potatoes in some ways. Something like 64% of Apple’s App Store revenue comes from 1% of customers spending crazy somes on in-app game purchases. (That’s a logarithmic distribution if I ever saw one!) Also, when you think about it, the fact that massive spending difference speaks to either massive economic inequality or the incredibly addictive nature of gaming, or both.
For streaming, though, following the news out of Japan and South Korea I covered last week, it seems like streamers will have a much easier time signing folks up outside of Apple’s payments.
Other Contenders for Most Important Story
Peacock Will Stream Every NFL Game
The key to Peacock thriving in the streaming landscape is differentiation, as I’ve written before. If they want to be the most “broadcast” of the streamers, sports and news are key. And the news from last week that every NFL game on NBC will be streaming on Peacock is a step in the right content direction.
Youtube Passes 50 million Paying Subscribers
Caveats abound in the latest number in the “audio streaming wars” from Google Youtube. Youtube announced it’s Youtube Music service--which they send pop-up notifications about subscribing roughly ten times a day--has surpassed 50 million sign-ups. How long these folks last and the average revenue per subscriber were left unsaid.
And this is a global number, which sounds less impressive than assuming it is a US number. (I still think as an industry we haven’t fully shifted from US to global numbers in our heads.) This means that Google comes in at either third or fourth in the total subs game, behind Spotify (165 million), Apple (55 million) and maybe Amazon (included with Prime).
Paramount Studio Head Departs and Other Executive Moves
The “cat nip” article of the week for industry insiders, to speculate about why Shari Redstone made this move (or allowed it to happen) and the “ramifications”. As always, I remain a bit blase about any individual executive movement. Is this a sign the studio is in trouble? That Paramount+ is in trouble? That studio head job no longer matters? That everything is failing?!?!?!?
I mean, who knows? It’s not like Paramount as a studio has been crushing it, either before or after 2017 when Gianopoulos showed up.. As for showing a lack of commitment to Paramount+, I don’t see that either. In this case, the move is a Rorscharch test: if you hate ViacomCBS, it’s another red flag, but if you don’t, it’s fine.
M&A Updates - Two Media Acquisitions, and a General State of M&A Update
Let’s start with the state of M&A: It’s booming. That’s at least the headline from the Wall Street Journal, and I have no reason to doubt their analysis. However, given the lack of dealmaking at the height of the pandemic, my gut is that the pace of dealmaking hasn’t changed from past years, especially when it comes to huge “mega-deals”. I’d also point out: dealmaking can mean, in some cases, everything from firms splitting apart to, what we usually assume, the big getting bigger.
Take two recent media deals. In one case, German media company Axel Springer bought Politico for $1 billion. That’s a consolidation-style merger. But in the other major media deal, the Apollo private equity firm bought Yahoo/AOL from Verizon. That's a divestment. Which is still a deal, but not a sign the big are getting bigger.
Other Things to Listen or Read
I really enjoyed this Twitter thread from David Poland which explains one particularly bad piece of math on the future of film: