Authors: Why Is Every Streaming Service Using the Same Pricing Model?

Streaming services are the big rage, but instead of aggregating and creating discounted bundles, each streaming service is selling “take it all or nothing” deals. Streaming services need to put a little more thought into their pricing strategies and provide more affordable options, as the author explains. Rafi Mohammed is the founder of Culture of Profit, a consultancy that helps companies develop and improve their pricing strategies, and the author of The Art of Pricing: How to Find the Hidden Profits to Grow Your Business (Crown Business, 2005) and The 1% Windfall: How Successful Companies Use Price to Profit and Grow (HarperBusiness, 2010). Follow him on Twitter @cultureofprofit.

The Pricing Advisor, December 2019

Remember the not-so-long ago days when Netflix was the king of streaming services? Back then it was an easy segment for the company to command: “For the pleasure of viewing our content, your only option is to go all-in for our unlimited usage plan.” But today, with so many streaming services available, offering only all-you-can-watch is a mistake. Doing so limits a service’s customer base and makes it vulnerable to better-tailored pricing from rivals.

We already have a multitude of streaming options. They include the stalwarts (Amazon Prime, Netflix, Hulu, HBO Now, Starz, Showtime), movie specialists (The Criterion Channel), television channels (CBS, ESPN+), a comic book/superhero channel (DC Universe), and even two British television services (BritBox, Acorn TV). Apple TV+ and Disney+ launched recently, and HBO Max (which will include programs from WarnerMedia) and NBCUniversal’s Peacock are set to go live in the near future.

Each of these services is charging between $4.99 to $14.99 per month for unlimited viewing. For a creative industry, where’s the pricing ingenuity?

The upside of intensified competition is better programming. Content quality skyrocketed when cable started to compete against three television channels (ABC, CBS, NBC). Streaming services have upped the bar, and more competition will continue to spur creativity. The downside is that instead of aggregating and bundling services (as cable has done), streaming companies have chosen to sell independently and offer only all-you-can-watch packages. As a result, consumers will have to cobble together several fragmented services to watch their favorite shows, and that can get expensive.

Streaming services are violating rule number one in pricing/packaging: meet the needs of customers. Viewers want to watch their favorite shows and minimize paying for programs that they’re not interested in. So while I’d enjoy watching Succession, the highly-rated HBO series, there’s not enough additional “must see” content for me to justify paying $14.99 per month for unlimited viewing.

Just as important, if rival streaming services start offering cheaper options (e.g. metered plans or a la carte), those that don’t follow suit will be put at a significant competitive disadvantage. Bloated all-or-nothing packages will be even less appealing.

So what should streaming services do? Rethink the virtues of (but probably keep) an unlimited plan and consider adding the following options:

Metered. The easiest solution is to meter usage by number of shows or viewing time. A handful of volume-based plans can be offered: low, medium, and high. And if the unlimited plan is ditched, a key problem will be solved. Friends and distant friends will be more vigilant on safeguarding their streaming passwords if they are now being charged for their “generosity.”

Good-Better-Best. Another way to provide discount options is to offer a line of packages. Content can be segmented by content type (series shows vs. films), exclusivity (original content vs. available on other services), and release date (new vs. six months after release). Usage restrictions include “ability to binge watch” (yes/no), viewing time (all week vs. only weekend), and device (mobile vs. television).

Metering/Good-Better-Best Hybrid. Cell phone pricing plans of the past are an example of a hybrid of metering and G-B-B. In addition to a fixed number of minutes, minutes were allocated to different categories such as off-peak, peak, and international.

Discounts to Incentivize Commitment. It’s odd that with the exception of Disney+, which is offering discounts for a long-term commitment, streaming services typically only offer month-to-month plans. This pricing strategy makes it easy to turn services on and off. (In theory, I could watch all of Succession by subscribing to HBO Max for just one month.) Volume discounts — committing to a period of time — can be employed to reduce customer churn.

Sure, cell-phone-like plans are cumbersome compared to the simplicity of one price for all you can watch. But that’s the point:  new plans are deliberately cumbersome. A common tactic in pricing is to create hurdles to identify price-sensitive customers. Thrifty customers stand out and credibly proclaim “price is important to me” by jumping over hurdles such as searching for, cutting out, and redeeming coupons. Price matching and rebates utilize similar types of hurdles. Streaming hurdles such as volume, content, and usage restrictions are used to ensure that discounts are only offered to customers who truly care about a reduced price. Customers who aren’t concerned about price can go directly to “unlimited.”

A one-price-fits-all strategy fails to acknowledge the simple fact that for any product or service, customers have unique needs and a different willingness to pay. With few rivals, mandating all-you-can-watch pricing was once tolerable. But to win in today’s competitive market, streaming companies need to step up their pricing strategies by offering choices to better accommodate the needs of their customers.

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