Commentary
Expect Higher TV Prices -- But Not In The Traditional Places
- by Wayne Friedman , Staff Writer, December 19, 2012
Think that $8 a month deal for Netflix or Hulu Plus is good, especially when compared to an $80 average for the likes of DirecTV, Comcast, Dish or Time Warner?
That’s why you can expect prices to climb. A lot.
It's true you get what you pay for. Netflix and Hulu don't offer live programming like news and sports. Scripted programming? Reality programming? Some is coming. But they’re still light years behind cable, satellite and telco operators who offer hundreds of programming channels.
To be fair, Netflix and Hulu do not see themselves as a traditional multichannel TV programming operators. (But media analysts sometimes do). They are subscription video on demand (SVOD) services. If anything, maybe Netflix is more like an HBO. Hulu? Maybe more like a for-pay, VOD-like, rerun-only USA Network, TNT or TBS.
The number of Hulu Plus subscribers has risen 100% this year -- to 3 million. The digital video site now pulls in around $700 million dollars a year, with half coming from subscription fees and the rest from advertising. But as Hulu Plus grows -- and adds more deals, particularly in original content -- you can expect consumer prices to soar.
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One Wall Street analyst, while cheering Walt Disney’s exclusive deal with Netflix for many future theatrical movies, questions how Netflix can pay for such high-priced content. He thinks it will come from consumers, of course. Previou Netflix deals have mostly been for non-exclusive movies or lesser-value previous seasons of TV series.
Are we entering a different consumer price stage for subscription video-on-demand services? Seems like there’s no choice. But perhaps marketing can help.
Like cable, satellite and telco operators, Netflix and Hulu have to offer more "channels" or programming areas, especially niche networks. And they need to tell this to consumers who always expect such "more" stuff from their media/entertainment providers. This is, of course, how cable operators built their business, with some of their tactics later followed by satellite and IPTV services.
If Netflix and Hulu want to be more competitive, it will mean bigger and bolder exclusive -- and expensive -- content deals. An $8 a month price tag, for many, may seem like a steal. But it isn't going to stay that way.
Wayne Friedman is West Coast Editor of MediaPost. You can reach Wayne at wayne@mediapost.com.
The question is not whether the price of SVOD services will need to increase because of new content deals (of course they will). The question is how these price increases compare to those the pay-TV industry is about to pass on to consumers because of their sports deals. Netflix may have to increase SVOD prices a buck a month because they are getting more and better content. but Comcast goes up $5 a month because the same content they've always offered now costs much more (specifically sports). Deciding whether the cost increase of Netflix is too much to bear is a decision made relative to what one pays (or might have to pay) for pay-TV. The decision is not made in a vacuum.