Every month, streaming gets a little closer to good old pay TV. It now seems like every service combines scripted entertainment with lower reality fare and live sports.
Increasingly, the monthly prices for these services are making the glory days of the pay-TV package look more attractive.
Take Thursday’s price hike from Netflix, which bumped up its standard ad-free plan to $19.99 per month. Twenty dollars a month is a symbolic number, but it highlights how the model is shifting. Streaming platforms want to give users the option to avoid most ads… but advertising is increasingly becoming 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 expensive. In other words, over time, the ad layer becomes a better value.
This is being reflected across the ecosystem, with services from Peacock and HBO Max to Disney+ and Paramount+ pricing their ad levels at levels intended to emphasize their value proposition.
If a consumer wants Netflix, Disney+, HBO Max, and Peacock, they can pay roughly $75 for ad-free tiers, or just $40 for ad-supported tiers. For most consumers, it’s a no-brainer.
Publicly, executives at Netflix, HBO Max and other platforms say they try to price their services based on parity, meaning they will do the same whether a customer chooses the ad-supported or ad-free tier. But ad executives say that thanks to improved targeting capabilities and new ad products, ad tiers have quietly become more profitable than their ad-free counterparts. It’s not consistent (it depends on engagement and time spent, as well as the capabilities of each service), but it does incentivize these platforms to gently nudge consumers in the ad-supported direction.
Some, like Amazon Prime Video, have been more aggressive, running ads for everyone, and now asking users to pay $5 a month to avoid ads.
Since these platforms all lean toward live sports, the advertising element becomes more important (it should be noted that live sports tend to have ads, even on ad-free levels).
“CPM for live streaming remains more than double that of cable and broadcast TV on average,” Madison & Wall analyst Brian Wieser wrote in a March 26 note. “Prices have gradually decreased over time, but there has not been a significant decline associated with the addition of new ad offerings from platforms like Amazon Prime Video or Netflix.”
In fact, streaming services like Prime Video and Netflix have become staples of TV’s first week, seeking to ink big deals with brands as they try to increase market share.
There’s one notable streaming service that still avoids ads on all content except sports: Apple.
A source familiar with the company’s thinking indicates there is no plan to add ads in the short term, though they also added that they “would never say never.”
As the rest of the streaming world leans into advertising levels, and as consumers continue to face rising entertainment costs as the prices of everything from gas to mortgages soar, the trend appears poised to continue.
Prices will continue to rise, but they will rise in a way that makes this ad-supported level a little more attractive.
