Netflix, Paramount+, and Hulu have all boosted the price penalty to watch ad-free. With the drive to make SVOD profitable, expect every service with an ad-supported tier to do the same.
Another value proposition of SVOD is under attack
If recent moves by leading SVOD providers are anything to go by, another core value proposition of SVOD is being eroded. Earlier this month, I pointed out that the slimming of SVOD libraries by Disney and WB Discovery weakened the idea that subscribers could rely on titles being available whenever they wanted to watch. Now, service providers are weakening the promise of ad-free viewing.
The incremental cost to watch ad-free is climbing
Today, Paramount Global announced it would increase prices for Paramount+. The least expensive ad-supported tier, Paramount+ Essentials, is increasing by $1 monthly to $5.99. However, the ad-free tier, Paramount+ Premium, is seeing a price increase of $2 to $11.99.
The justification for the bigger increase in the Premium tier seems to be the inclusion of Showtime content. The name of the tier has also been changed to Paramount+ with Showtime to emphasize the point. However, since there are only two tiers, people wishing to watch ad-free are stuck paying $2 more regardless of their interest in Showtime content. The net result for Paramount+ subscribers is that the penalty they pay to watch ad-free has increased from $5 a month to $6.
Netflix’s move to eliminate its Basic without ads tier has created an even bigger penalty for ad-free viewing. Before the change, a prospective subscriber could pay $3 more monthly to watch ad-free. Now they must pay $8.50 a month more. The huge price penalty is particularly galling to subscribers when you consider Netflix made its name as an ad-free service.
Last year, Hulu also increased the cost penalty to watch ad-free from $6 to $7 monthly.
The message for streamers is clear: if you want to continue to watch ad-free, you will be asked to pay a lot more.
Many want to watch without ads
According to Hub Entertainment Research, around 60% of US adults are willing to watch ads if it saves them $4-$5 a month, whereas 40% would rather spend $4-$5 extra to watch ad-free. Hub asked Disney+ and Netflix subscribers what they would do when the ad tier became available. 35% of Disney+ subscribers said they would switch to the ad tier, and only 24% of Netflix subscribers said the same.
When Disney+ and Netflix introduced their ad tiers, the price penalty for watching ad-free was $3, a little below that tested by Hub in its survey. Now that the penalty is $8.50 at Netflix, I wonder how many subscribers will opt to watch with ads?
Top SVOD providers will test the pricing limits
During Disney’s Q2 2023 earning call, the company’s CEO, Bob Iger, made this comment when questioned about future price increases:
“We were pleasantly surprised that the loss of subs due to what was a substantial increase in pricing for the non-ad-supported Disney+ product was de minimis. It was some loss, but it was relatively small. That leads us to believe that we, in fact, have pricing elasticity.”
Mr. Iger couldn’t have been clearer: ad-free Disney+ subscribers will be asked to pay a lot more. He will continue to push the price until the “elasticity” evaporates, and churn starts to increase. And with the industry-wide push for profitability, you can expect every SVOD provider with an ad-supported tier to do the same.
