A few significant price tweaks in the past few weeks are signaling a new era in the streaming video wars.
The market leader, Netflix -- entrenched as the worldwide number one and unafraid of its users canceling their service -- raised the prices on most of its tiers of service, in an effort to generate revenue and maintain its content flywheel.
Then Hulu, second to Netflix in the U.S., announced it would be lowering its entry-level price point, offering its ad-free tier for $2 less than its previous price.
At the same time, Hulu raised the price of its streaming pay-TV bundle Hulu with Live TV by $5, following price increases from Sling TV, YouTube TV and other competitors.
What we are seeing is a rejiggering of the value of these streaming video services -- all built around research that suggests that consumers have limited desire for more than a handful of offerings, and a budget or around $40 per month to spend.
The only player in these new battles operating from a position of pure strength is Netflix, bolstered by its sheer scale and brand loyalty. Everyone else is still trying to catch up. It is how they are trying to catch up that makes all the difference.
Hulu is betting that its innovative advertising offerings can more than make up from the subscription revenue it is giving up. At the same time, it is trying to constrain costs on its streaming pay-TV service (where the monthly carriage fees from channels consume essentially all of the monthly subscription fee), in order to make that service profitable through those same advertising innovations.
Other streaming bundles will see their prices rise as well.
At an AT&T investor event last month, AT&T CFO John Stephens says that the company was focusing on “increased profitability in OTT video,” by raising prices and developing more advanced advertising technologies.
Randall Stephenson, CEO of AT&T Communications, added at the investor day that “we have to find skinnier packages that fit viewing profiles” -- in other words, smaller bundles of content that might be offered at a better price.
Of course, for a consumer there is no better price than free -- and the battle for free streaming video is just as hot. Viacom’s acquisition of Pluto TV suggests that the media giant has its own plans for free streaming, including building out its advanced advertising business.
In sum, these are exciting times for streaming video, and advertising is at the heart of it. Free ad-supported services, moderately priced ad-supported services, and ultra-premium streaming pay-TV services are all betting on new advertising models to bolster their bottom line.
Now the only questions are whether the advertising business is ready to move the video ad business forward -- and how consumers will respond to a marketplace with a fresh focus on pricing.