Netlfix: New Boss Just the Same as the Old Boss?

One sturdy storyline is “new boss just the same as the old boss.” So it is that some observers criticize video streamers such as Netflix for raising prices, just as legacy cable TV suppliers do. 

That seems unfair, as it is a charge that could be aimed at all sellers of products and services over time, especially when inflation rates are higher. And find any publicly-traded company whose basic imperative is anything other than “grow revenue and earnings” every year. 

Also, except for Netflix, virtually all other public streaming services are unprofitable, which is one reason why prices are being raised. 

Of course, one might prefer that higher prices over time are accompanied by higher value as well. 

So when others might argue that streamers such as Netflix are facing greater risks of becoming monopolists with weaker value propositions for consumers, that is a greater risk only if Netflix cannot grow its value proposition. 

That again is a general issue with all potentially market-leading firms. “New and improved” is almost a necessity, over time. 

We might agree with those who argue the “lower prices overall” advantage of streaming services only sometimes seems to be the case. Since many, perhaps most, consumers buy multiple streaming services, “saving money” is often, but not always an advantage, compared to buying a single linear subscription. 

It might be fairer to say that the key advantage is “choice” rather than “cost,” as a rule. 

Sudy	Year	Sample Size	Recurring Cost per Service (USD)	Avg. Number of Services per Household	Total Spending per Household (USD)	Key Findings
Parks Associates	2023	10,000 US households	$12.40	3.2	$40	Households with higher incomes subscribe to more services. Gen Z and Millennials lead in streaming adoption.
eMarketer	2022	1,000 US internet users	$15.00	2.7	$39.50	Increased cost-consciousness leads to subscription stacking and “churning” (switching between services).
GlobalWebIndex	2023	120,000 internet users across 25 countries	$10.80	2.4	$26	Global adoption of streaming is rising, with regional variations in preferred platforms.
Statista	2023	2,000 US adults	$14.20	3.0	$42.60	Original content and exclusive programming drive subscription decisions.
Nielsen	2022	5,000 US households with streaming subscriptions	$13.70	2.9	$39.30	Cord-cutting continues, with younger generations relying solely on streaming.

We might also argue that streaming is to linear video as many other forms of “internet” content are to legacy forms of content: more on-demand; more user-generated; more platform-oriented; pull (algorithm driven) from push (linear packaging); more consumption of “stories” or “items” rather than specific media. 

In and of itself, higher prices over time are not unusual, nor specific to Netflix or other streamers. What will draw attention is inflation rates that are higher than “background” rates of inflation. 

One might note that video streaming retail costs have risen faster than the background rate of inflation since perhaps 2024. On the other hand, it is also fair to note that almost no streaming services are profitable at such rates, either. 

Providers still are searching for the better formula for a sustainable business model. 

The Coming Age of Streaming "Super Bundles"

"Super bundles" are coming in the video streaming business.

If there is anything we can “know” about consumer preferences for buying video content, it is that convenience, price and simplicity are desirable. In either linear or “streaming” eras, consumption therefore always has involved some amount of bundling.

Content was aggregated into broadcast channels; then cable TV channels and now streaming service brands. 

What consumers never have had, in the video format, is a la carte access to individual shows. That has remained a staple for the theatrical exhibition business (movies shown at movie theaters), but the video business always has involved bundling. 

And that means the next era of streaming evolution will involve the creation of “bigger” or “broader” bundles that essentially replicate the value of the older linear format: pay one price, get lots of content, at one place. 

Whether the packing is “channels” or “streaming services,” some form of bundling always is required, as the cost of distribution of single shows or episodes is too difficult a business model, either for suppliers or consumers. Simply, the cost of selling or buying a single episode is too high, at the volumes most consumers will prefer. 

Cost element	Description
Content acquisition	The cost of acquiring the rights to distribute the content. This can be a significant cost, especially for popular content.
Content preparation	The cost of preparing the content for distribution. This includes tasks such as encoding, transcoding, and packaging.
Content delivery	The cost of delivering the content to consumers. This includes the cost of bandwidth, content delivery networks (CDNs), and other infrastructure.
Payment processing	The cost of processing payments from consumers. This includes the cost of credit card fees, fraud prevention, and other services.
Marketing and promotion	The cost of marketing and promoting the content. This can be a significant cost, especially for new or niche content.
Customer support	The cost of providing customer support to consumers. This includes the cost of staffing call centers, providing online support, and handling customer inquiries.

In addition, there are indirect costs:

• The cost of maintaining and updating the underlying technology infrastructure.

• The cost of managing and protecting intellectual property rights.

• The cost of complying with regulations.

• The cost of managing and resolving disputes with content creators and distributors.

Of course, on-demand distribution costs can be quite different depending on the delivery platform: retail stores renting DVDs or CDs; retail delivery by mail or internet delivery. 

Delivery Method	Direct Costs	Sample Cost (Per Episode or Movie)
Rental in Retail Stores	Manufacturing and duplication of discs, physical distribution to stores, store overhead, inventory management, disc replacement	$2.00 - $5.00
Postal Delivery	Disc manufacturing and duplication, postage costs, packaging materials, return postage or prepaid return envelopes	$3.00 - $6.00
On-demand Delivery (Per Episode)	Content acquisition, content preparation, content delivery infrastructure, payment processing, customer support	$0.50 - $1.50
Streaming Service	Content acquisition, content preparation, content delivery infrastructure, payment processing, customer support, marketing and promotion	$0.20 - $0.50

As a rule, bundled delivery using internet mechanisms offers the lowest overall delivery costs, compared to physical media. 

The point is that full a la carte access to individual titles is  impractical for many reasons. No single firm can afford to amass the full available catalog of created video content. Given the typical amount of video content people watch, 

By age group, people watch somewhere between three hours and 4.5 hours of content daily. 

18-24: 4 hours, 37 minutes

25-34: 3 hours, 54 minutes

35-44: 3 hours, 47 minutes

45-54: 3 hours, 31 minutes

55-64: 3 hours, 10 minutes

65+: 2 hours, 50 minutes

Assume the “typical” item is a 20-minute episode. That implies delivery of between nine and 14 episodes daily. Using a full on-demand model, that implies a cost of at least $3 to $9 daily, or about $90 to $270 per month. 

If you think about the pricing of streaming and on-demand services, it seems clear that consumers will not willingly pay such amounts for full a la carte access, even if it were possible. 

At the moment, declining take rates for linear video suggest that format is not preferred, even at typical costs of between $80 and $100 a month. The ultimate amount of spending for streaming alternatives is still developing, but many households already buy multiple subscriptions. 

The average U.S. household subscribes to 4.2 streaming services, up from 3.4 subscriptions in 2022, according to a 2023 survey by Leichtman Research Group. The survey also found that the average household spends $67 per month on streaming services, up from $55 in 2022.

Obviously, in an a la carte environment (were it possible), consumers would pay more than they presently do to watch video content delivered using the internet, the most-affordable platform. 

All of which explains why full a la carte buying (anything you want, when you want it) never happens. 

Instead, the business terrain centers on amalgamating enough content, at a low-enough monthly price, to satisfy enough customers so the business can survive. So far, most streaming services offering on-demand viewing have prices ranging from $5 to to $15 a month.

Streaming Service	Monthly Price (USD)
Netflix	9.99-19.99
Prime Video	8.99
Apple TV+	4.99
Hulu	7.99-14.99
HBO Max	14.99
Disney+	7.99
Paramount+	4.99-9.99
Peacock	4.99-9.99

Such prices do not seem sustainable, at such levels, financial reports suggest, as only Netflix actually seems to earn profits. 

The full issue is that the older linear TV model also is shrinking at a time when streaming investments are being made, so it actually is a combination of lower revenue and higher costs that are the problem for streaming providers. 

In other words, content producers are losing scale in a business where scale matters. Note especially the loss of advertising revenue for streaming models, compared to linear models. 

Element	Video streaming (%)	Linear video (%)
Revenue
Subscription fees	50-60	10-20
Advertising	20-30	70-80
TVOD (episode sales)	5-10	0
PPV (live event sales)	0-5	0
Merchandising	0-5	0
Cost
Content licensing	30-40	40-50
Production	10-20	0-10
Marketing	10-20	10-20
Technology	10-20	10-20

The point is that cost, convenience and simplicity have always driven the video business towards bundling, and that is unlikely to change in the streaming era of video delivery. 

To prosper, streaming services will have to gain greater scale, and that also means fewer but larger suppliers. It likely also means a reconstitution of the older cable TV bundled model of one flat price for lots of content. 

At first rather informally, then likely later formally, bundles of popular streaming services--”super bundles”--will be offered to consumers, where paying one price gives access to a few or several top services. 

In the early days, this will take the form of a “super bundler” aggregating two or more services into a package, often with other services such as mobile or internet access (home broadband) service. 

It’s coming. Consumer demand and supplier necessity will drive it.