How Much Will Consumers Pay for Streaming Video?
Americans are subscribing to more streaming services than ever, as the number of options has expanded significantly since 2019. The median streaming household has three subscriptions and pays between $20 and $29.99 per month for them, according to a recent report from Nielsen.
Despite market expectations that subscriber churn will rise, there's reason to believe consumers will subscribe to more services overall and increase their budget for streaming.
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Look at the older streaming services
Before every media company under the sun had multiple streaming services, there were three big players in the industry -- Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN), and Hulu.
All three services have managed to raise their pricing without significant pushback from consumers. The Netflix plan that cost $8 per month when it was introduced more than 10 years ago now costs nearly double that, at $15.49 per month. Amazon Prime has gone from $79 per year to $139 per year in the same time frame. And Walt Disney (NYSE: DIS) raised the price of each Hulu subscription tier by $1 per month last year. (Disney also raised the price of Disney+, which has quickly climbed into the top tier of streaming services.)
The fact that the old guard is willing to raise their pricing despite the increase in competition is a sign that management at those companies sees a strong willingness to pay from consumers.
Indeed, while subscriber churn remains a concern for streaming services going forward, the overall number of streaming subscriptions per household is expected to keep growing. Nielsen found that 93% of its survey respondents plan to keep or increase the number of streaming services they subscribe to. However, streaming households may become more likely to subscription-hop as they seek to maximize their entertainment budgets.
Adding more subscriptions
About one-third of streaming subscribers pay more than $30 per month for their preferred services. Slightly more have four or more streaming subscriptions. And the trends indicate that that number is growing, and will continue to grow. Just 11% of subscribers had four or more streaming subscriptions in 2019. A separate survey found streaming households spent 24% more per month on streaming in 2021 than before the COVID-19 pandemic.
If you compare streaming budgets to pay-TV, there's plenty of room to grow. At its peak, the average pay-TV household spent over $100 per month, and there were more than 100 million households subscribed. But cord-cutting continues to chop away at that number, as streaming video on demand has proven to be a better product in most cases than cable TV.
That's why media companies are willing to burn cash in order to fund their streaming services. The outlook for the industry is extremely strong, and investors should be willing to sacrifice profits today in order to secure a spot in more living rooms in the future.
Investors in media companies that are spending heavily on streaming, such as Disney, Warner Bros. Discovery, and ViacomCBS, need to pay attention to some metrics outside of the company. Follow the results of price increases from other streaming services, especially the well-established players like Netflix and Amazon. Furthermore, watch for industry data indicating greater engagement with streaming and willingness to pay. These are the factors that will determine the long-term success of streaming investments.
With the median household paying between $20 and $29.99 per month for streaming, there's still a lot of room to grow for the industry as a whole.
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