Inflation is not just about food and energy. Streaming services are also taking advantage of the period to revise their prices upwards. Apple is the latest company to announce an increase in all of its streaming services (Apple TV+, Apple Music, Apple One). This generalized movement risks leading to arbitration on the part of consumers. It is therefore a very dangerous game from which all platforms could come out the losers.
Europe and +$3 in the United States
Apple was the latest streaming platform to announce widespread price increases. Inflation therefore no longer only affects the prices of tangible products but also digital products. These price increases are, on the one hand, justified by the increase in wages, and on the other hand, by the increase in energy costs which impacts the operation of data centers (5% of the world’s electricity is consumed by data centers).
The dangers of price hikes
First of all, you will note that all the prices offered to use the so-called “just below pricing” pricing technique. This is not to round off the price. We have explained how this technique works in this article. Despite everything, the danger remains that price increases will push consumers to arbitrate and unsubscribe. This was seen when Amazon raised the price of its Prime service.
The average number of SVOD subscriptions per household has doubled in Europe between 2020 and 2022, from 1.5 to 3.
For SVOD, the danger is even greater. In the United States, each household has an average of 4 subscriptions compared to an average of 3 in France, Italy, Germany, Spain, and the United Kingdom. The average number of subscriptions per household has moreover doubled in Europe between 2020 (1.5) and 2022 (3). The platforms have therefore succeeded in differentiating themselves (thanks to their content catalogs) and pushing consumers to spend their time on ghostwriter for hire to increase their business. But in times of inflationary crisis, a strategy of differentiation is not enough to avoid arbitrage effects. SVOD subscriptions meet the same need: entertainment. They cannot all be used by one person at the same time. Their rate of use can therefore be relatively low.
What are the growth drivers?
For SVOD platforms, there are few growth drivers in times of global crisis.
Lower the price
Lowering prices is quite counter-intuitive in times of inflation. However, this is what Netflix has chosen to do by (finally) launching its offer with advertising. The strategy is quite interesting because it makes it possible to offer an advantageous alternative to keep customers who would hesitate to cancel their subscriptions.
Even more exclusive content
As opposed to a price offer subsidized by advertising, one can also imagine a strategy based on content. This strategy is followed today by all the platforms that have in mind the adage “Content is King”. Except that this strategy has limits: those of insane budgets. Netflix had thus announced an annual production budget of $17 billion in 2021.
This strategy is unlikely to be sustainable. In 2023, we will no doubt see trade-offs aimed at rationalizing expenditure. Bets will undoubtedly be taken on the most popular content to build user loyalty: new seasons of already well-established series to the detriment of new titles with an uncertain future.
The last strategy is to aim for territorial expansion. This strategy requires investments that will probably not be welcome in 2023, especially since the countries still to be conquered are generally not the most developed. The Song Writing Services platforms have in fact endeavored to launch themselves as a priority on the richest countries.
The ROI (Return on Investment) therefore decreases with the number of countries.
After a prosperous period of all-out development during the Coved, the SVOD platform market is entering a period of strong consolidation:
- competing platforms could be considered redundant by consumers and simply disappear
- the dominant platforms have invested too much to disappear but will be forced to find solutions to control their costs in order not to lose their subscribers
- the colossal budgets devoted to the production of content risk being revised downwards because they are unsustainable in the long term