Streaming Services Face Subscriber Exodus Amid Rising Costs and Market Saturation

In recent years, the ambitious hopes studios placed into streaming services in the United States are starting to backfire. As a result, the streaming landscape in the United States is undergoing a period of retraction, just as the theatrical and pay television market is collapsing.

Major platforms such as AppleTV+, Amazon Prime Video, Max, Peacock, Paramount+, Netflix, Hulu, and Disney+ have all witnessed a considerable decline in subscribers. Approximately 25% of US subscribers have canceled at least three of these services, signaling a troubling trend for the industry.

Streaming Trap: Studios Struggle as Boom Fizzles

Streaming subscriber growth in the United States has halved in 2023, signaling the end of the industry’s boom in its key market. Once seen as a goldmine, the premium subscription-video-on-demand category’s growth slowed to 10.1% last year from 21.6% in 2022. While overall growth has doubled in four years, this masks a troubling re-subscription trend.

At the onset of the streaming frenzy, companies poured money into creating vast amounts of content to attract and retain subscribers. Lockdowns in 2020 and 2021 further accelerated sign-ups as customers sought entertainment with theaters closed. However, the tides have shifted.

Netflix, which commanded nearly half of the subscriptions in 2019, now represents just over a quarter of the market. Paramount+ has overtaken Disney+ in total subscriptions, while Peacock and Paramount+ saw slight market share increases. In contrast, Discovery+, Disney+, and Hulu experienced declines.

The industry’s previous phase was laser-focused on acquiring a mass audience. Now, the largest players, having achieved scale, must pivot to managing their subscribers and gradually raising prices.

About 30% of gross additions in 2023 were re-subscribes, referring to users who had previously canceled and then rejoined the service within the prior 12 months. Nearly a quarter of these cancellations returned within three months, and more than 40% within 12 months, highlighting the volatile churn and burn aspect of subscriber behavior.

The studios’ ambitious leap into streaming, in an effort to challenge Netflix, is proving to be a trap, with growth stagnating and market dynamics shifting unpredictably. The future of streaming now hinges on balancing subscriber retention and sustainable pricing, a far cry from the initial promise of endless growth and reduced marketing and operational expenses.

Streaming Subscribers Question Cord-Cutting as Costs Soar and Content Diminishes

The proliferation of new streaming services has led to a saturated market, prompting companies to increase prices by up to 43% over the past year to boost profitability. This substantial increase has strained consumers’ wallets, making it increasingly difficult to justify the cost of multiple subscriptions.

The cost to subscribe to the nine major streaming services in the US has soared to over $120, up from just over $100 a year ago. Once seen as a cost-effective alternative to cable television, the rising prices of streaming bundles are diminishing their appeal as a budget-friendly option.

While cable television costs vary across different markets, the average monthly cost for a cable service is approximately $83. This figure starkly contrasts with the escalating expenses of streaming subscriptions, making traditional cable a more attractive option for budget-conscious consumers. The supposed savings from cord-cutting are rapidly eroding, leaving many questioning whether the shift to streaming was worth it.

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Streaming Wars Turn Into Pricing Wars

The trend of increasing subscription prices for streaming services continues, with Peacock set to raise its rates in mid-July, just before the Paris Olympics. Max has already implemented a surprise price increase ahead of the new season of HBO’s “House of the Dragon.” The monthly fee for its ad-free plans increased by $1, and its top tier increased from $16.99 to $20.99 per month.

This pricing strategy marks a significant shift from two years ago, when Warner Bros. Discovery (WBD), the parent company of HBO/Max, reduced annual subscription prices by 30% to attract new subscribers. The goal then was to lock in subscribers for a longer term to reduce post-season churn, but it failed to work as streamers hop from service to service in search of harder-to-find entertainment content.

Streaming Service Pricing – Updated June 2024

Following Max's recent price hike, it offers a rare promotional free trial, allowing new customers to explore its premium content without financial commitment. This seven-day free trial, available through June 23, aims to attract new subscribers by showcasing the platform's extensive library, hoping to convert trial users into long-term subscribers.

Additionally, Max is accessible as an add-on channel to existing subscriptions on platforms like DirecTV, Prime Video, and Hulu, further broadening its reach and convenience for cord-cutters who prefer consolidated streaming services.

Unlike the previous strategy, WBD's current approach focuses on maximizing immediate revenue from new subscribers rather than encouraging long-term commitments. This change suggests that the previous annual discount strategy may not have been effective, as evidenced by WBD losing nearly a million domestic streaming subscribers since Q3 2022.

FilmTake Away: A Delicate Balance to Maintain Streaming Growth

The streaming industry faces a complex scenario of rising costs and shifting consumer preferences. The recent exodus of subscribers, driven by price hikes and market saturation, coupled with a more cautious approach to content spending, underscores the delicate balance the industry must strike.

Despite reduced content spending, the principle that "content is king" continues to dominate pricing strategies, with media companies leveraging popular shows to justify higher subscription costs.