Why are streaming service becoming more expensive each year?

Streaming is finally becoming profitable for media companies, but it's coming with a catch: consumers are dealing with higher subscription costs and frequent price increases.

As traditional cable TV bundles lose their appeal, legacy media companies have ventured into the streaming market, initially focusing on subscriber growth to compete with Netflix. Now, with an eye on recouping their content investments, companies like Disney and Warner Bros. Discovery are targeting profitability through various strategies.

These strategies include introducing cheaper, ad-supported plans, launching bundled services, and cracking down on password sharing. However, recent price hikes have yielded more immediate results in boosting profits.
“The era of prioritizing user growth through low prices is over,” says Mike Proulx, VP and Research Director at Forrester.

Disney recently announced that its streaming services—Disney+, Hulu, and ESPN+—became profitable for the first time during its fiscal third quarter. Although the company added new subscribers, this milestone was primarily achieved through price increases. Disney CEO Bob Iger justified the hikes by highlighting the company’s creative innovations and improvements. He added that past price increases haven’t significantly affected customer retention.


Price Hikes Overview

In the past five months, major streaming services have implemented several price increases:

Disney+:
Current: $9.99 (ad-supported), $15.99 (ad-free)
October 2023: $7.99 (ad-supported), $13.99 (ad-free)
December 2022: $7.99 (ad-supported), $10.99 (ad-free)

Peacock:
Current: $7.99 (ad-supported), $13.99 (ad-free)
July 2023: $5.99 (ad-supported), $11.99 (ad-free)
January 2020: $4.99 (ad-supported), $9.99 (ad-free)

Max (Warner Bros. Discovery):
Current: $9.99 (ad-supported), $16.99 (ad-free)
May 2023: $9.99 (ad-supported), $15.99 (ad-free)

Paramount+:
Current: $5.99 (ad-supported), $11.99 (ad-free)
August 2024: $7.99 (ad-supported), $12.99 (ad-free)
February 2022: $4.99 (ad-supported), $9.99 (ad-free)

Disney recently raised prices for Hulu, Disney+, and ESPN+ by $1 to $2 per month. Similarly, Paramount Global announced that Paramount+ became profitable, with global average revenue per user rising by 26% due to price increases. Additional Paramount+ price hikes are expected to impact financials in the fourth quarter.

Comcast’s Peacock also saw a price increase for its ad-supported tier, while Warner Bros. Discovery raised Max’s ad-free price by $1 per month in June.

For years, streaming services offered a vast amount of content at prices below market value. As Warner Bros. Discovery’s finance chief Gunnar Wiedenfels noted, this situation is now being corrected with price increases across the industry.


Consumer Impact

Forrester’s Proulx observes that Disney’s recent revenue growth largely results from higher subscription prices rather than user growth or ad revenue alone. This shift puts pressure on consumers, who are increasingly feeling the strain of rising costs. A Hub Entertainment Research survey revealed that 90% of consumers believe streaming service prices are increasing more frequently.


Ad-Supported Models

Many companies are steering users towards cheaper, ad-supported tiers to boost ad revenue. Warner Bros. Discovery reported that its ad-supported tier saw significant growth, with over 40% of new global subscribers choosing this option last quarter. Paramount and Peacock have also seen increased revenue from advertising.
Netflix, which initially resisted advertising, introduced an ad-supported plan in 2022 and recently removed its lowest-priced, ad-free plan. Netflix co-CEO Ted Sarandos stated that the ad tier makes the service more accessible and aims to increase value before raising prices.

Despite the appeal of lower subscription fees with ads, these tiers are not immune to price hikes. Disney+ recently raised prices for its ad-supported plan, and Warner Bros. Discovery experienced fewer customer losses than anticipated after a price increase.


Maintaining Subscribers

Despite rising costs, consumers are generally reluctant to give up content they enjoy. However, the total cost of streaming can sometimes exceed that of cable when content is spread across multiple platforms. In response, companies are offering bundles that combine various services at a discount, aiming to retain subscribers and increase revenue.

Streamers are also targeting password sharing to boost user numbers. Netflix, Disney, and Warner Bros. Discovery have all introduced measures to limit account sharing.

The competitive landscape of streaming is evolving. While low prices helped early growth, the current model may not be sustainable. “The volume of content available at such low prices was an unsustainable deal,” says Jon Giegengack of Hub Entertainment Research.