Raising Subscription Fees Is An Option … That Sucks

Content Insider #801 – Growth

By Andy Marken – andy@markencom.com

“Yeah, well, when a bad idea is the only idea, it becomes a great idea. – Big Adam, “The Adam Project,” Netflix, 2022

If we hear one more studio or streaming service executive tell financial analysts during their earnings calls that they will be raising their monthly/annual subscription fee because “there’s no doubt that our products are priced way too low,” we’re going to throw up!

Value is relative and it’s the consumer who determines the value of your content … not you!

If you’re not making enough on your projects, you have options:

• Take your projects that people are begging to see back to the theater, give them an appropriate window – 30-90 days before you rotate the stuff to your service and take 50 percent +/- of the take
• Plug your pirated holes that are siphoning off $14-20B in revenue (every year) and cut off folks who are sharing passwords for your service (subscribers end up paying for them to watch your stuff)
• Cut your executive salary in half as Apple’s Tim Cook did (okay, it’s about $50M; but still)
• Get out of the content creation business, get a job with the largest BlockBuster store in the world.

Last Frontier – While the BlockBuster video rental chain officially closed its doors years and years ago, one franchisee kept the industry icon alive and remains open up in Bend, Or.  The store ran an ad prior to/on the same day as the Super Bowl but on social media.   Global attention.  

Maybe the last option is a little over the top but the Bend, Or, store has an absolute lock on the market … zero store competition.

How tough can your job be then?  

Theater First – No one told studios they had to quit showing their projects on their streaming service before they appeared in theaters across the globe.  It was their financial decision.  

No one has ever stopped studios and content owners from returning to yesteryear’s theatrical window, it was the studio execs who said they wanted to stuff their SVOD service with the newest/best.

There are currently over 30,000 movie theaters around the globe with about 200,000 screens so, go for it.

They sold an estimated 5.7B tickets plus popcorn, junk food and drinks last year, and with the right assistance from content providers (that means studios pay for the marketing) they could sell an estimated 7.7M tickets in “a few” years.  

Slow Decline – While theater owners loudly proclaim people are returning to put seats in seats, they don’t add that the numbers have been steadily declining for years but not their profits. 

It’s true, ticket sales have been dropping slowly since 2001–rather like pay TV subscriptions–but the theater owners take has improved with increased concession prices/sales.

No, not every project that is put on the big screen is going to have the audience demand of Top Gun: Maverick ($1.5B) or Avatar:The Way of Water ($3B) or China’s The Battle of Lake Changjin (5.8B renmimbi) but…

And after footing all the marketing costs and splitting the take (usually 50/50) with the theater owner, you’ll also be in good stead with the award contests and be in the running for a beautiful statue.

Of course, you’ll also be able to pick up some added income from digital purchases and rentals.

Finally, when the time is right, you can add the title to your subscription or ad-supported streaming service.  

Free Stuff – The use of torrent and other illegal sites to view or download films and shows has grown significantly, having a direct impact on studio bottom lines.  

Pirating TV and movies is nothing new.  Folks have been stealing the projects for years, starting back with ugly video camera stuff people took in the theater and posted them for free (along with their adware and malware).

Profitless – Counting the number of downloads/views of a studio’s movies or shows on pirate sites is not a marketing expense, it’s a lost opportunity for organizations to recoup costs and add to their bottom lines.  

Grabbing digital copies off the air just made it easier and they look a whole lot better.  

Don’t believe the folks who tell you that all of those people around the globe who are streaming and downloading illegally are really just part of your marketing team.

Even before he stepped back from active management at Netflix, Reed Hastings said piracy (and password sharing) were costing the company a helluva lot of lost income.  

Losses to the content industry’s stolen/borrowed projects amount to more than $20B plus annually … just in the US.  

Folks like to say that pirate viewers won’t pay for content but Ampere Research found that 54 percent of the people they interviewed who watched pirated films/shows from time to time also paid for legal services. 

In fact, 91 percent said they had five or more legal services.

And if they don’t, what did you lose … freeloaders!

The MPA’s (Motion Picture Association) ACE (Alliance for Creativity and Entertainment) has been working since 2017 to shut the pirate operations down and they’ve been so/so successful.

Still, there are a lot of security and anti-piracy solutions studios and streamers can implement and closely monitor to minimize pirate access to films/shows and manage the content stream from the beginning to the viewer’s screen. 

All it takes is focusing on the thieves instead of expecting streaming subscribers to cover the losses.

But let’s get back to the people who are actually subscribing to your service.

Budgeting – Consumers everywhere have to keep track of the money that comes in and the money that goes out.  If a streaming service goes outside of the family’s budget … it goes. 

Consumers – your target market – have budgets just as you do on your projects – time, money.

Time is the first issue because as hard as it might be to believe; men, women, kids and even some pets aren’t addicted to their screen.

Exciting – When shows/movies were first sent to smaller screens, people crowded around to watch so they wouldn’t miss anything.  Now they have other entertainment options.  

Okay, maybe that’s an over statement since YouTube, TikTok and the rest of the social media have people are hooked because of FOMO (fear of missing out) but that’s a whole different issue you don’t even care about.

However, the cost of your streaming service isn’t everything in ordinary folks’ financial budget.

Juggling – Entertainment is just one of the many expenses that families have today and many/most are more important that their streaming subscriptions.  

For most households around the globe, there are really important items in their budget that have first priority over whatever money comes in/goes out.

In fact, if you examine the graph closely, you’ll notice that entertainment might – just might – have less of a priority than anything else.

And for entertainment people have a lot of options beside lying on the couch and watching your content.

Watching Content – The only thing your flat screen can do is note that it is on in the household.  It can’t tell streamers how many people are watching, if they’re napping or even in the room which would be a little too intrusive.  

As we said earlier, folks have social media and trust us, TikTok and YouTube can suck up a day Bam.  

Then too, there’s relaxing with music, reading a book, playing video games or…

We realize you jumped into this streaming video direct to the consumer business because it looked simple and seemed a great way to bypass all the other folks who stood between you and “your” customer.

After all, if some tech red envelope stuffer can capture the screens/eyeballs and checkbooks of people around the globe, how difficult could streaming be?

Great Growth – One of the key reasons streamers were attracted to the direct-to-consumer model was undoubtedly because they saw the success Netflix had in signing up new subscribers. But … it takes a lot of hard work to achieve steady growth.  

Now you know!

Actually, if you ask them, they probably would have been just as happy with studios sticking with the theater window, renting the movies to them afterward and what the heck, even producing movies/shows for them.  

But no, a direct pipeline from you to the consumer was more valuable.  

The trouble was almost every studio had the same idea.

Multiple Choice – Suddenly there isn’t just one source (and cost) for a family’s entertainment, there are dozens.  Each with the most valuable content on earth.  At a point, consumers will make tough choices.  

Suddenly, everyone seemed to have 5-6 services and online video entertainment was suddenly a big part of the family budget.

In addition, folks were fickle.

They didn’t like your movie/show selection, saw something “over there” they thought they’d like better, your service was difficult to use/find stuff; they’d leave you like a bad dream and go with someone who “really appreciated/understood them” until they got tired of them and … adios.

In/Out – When you give people multiple choices for a wide range of content, they will change their minds on what they want to watch depending on their mood, happenings around them or hundreds of different reasons.  Raising the price for your valuable content won’t keep them.  

Sure, they might come back but then … they may not.

In the meantime, the studio/streamer management look like losers.

Financial analysts and stockholders expected more from you, and you have to show you’re running the ship and not the consumer so, you tell them the service is under priced and you’re going to charge for the true entertainment value.

Wait!

What’s wrong with tiered pricing? You know, free ad-supported, ad-based, subscription.

Even as he was stepping back from active management, Netflix Reed Hastings admitted that ad supported streaming was a good idea and he even thanked Hulu for showing the industry that it would work.

In fact, word is that Ted Sandaros and his new co-CEO are rumored to be toying with the idea of adding a FAST tier.

They figure they’ve about hit the ceiling on what they can charge a subscriber for the ad-supported and subscription services. They’re still intent on developing more super-cool content and in growing their customer base.

But … that’s only a rumor.

Money Talks – Folks may loudly complain that ads are beneath them until it comes time to pay less for watching content with a few versus content with no ads.  The key is the right balance of ads with the right messages.  

What they do know – surprise! – is that consumers don’t mind ads if:

• The price is right
• There aren’t as many ads as there were in the pay TV days (3-4 minutes per hour vs. 15-20 minutes)

However, it’s not the old ad-embedded content world.

Networks/studios have had years of “selling” the idea that their service/content was worth X dollars per second because you were delivering a huge volume of prospective customers/users so the CPM was really inexpensive.

Erase that sales pitch from your memory because it won’t fly.

You’re selling a quality opportunity.  

A smart streaming service has a ton of data about the subscriber/viewer and it is/should be the most current and specific information available. That means marketers can’t use a firehose to spread their message but need a clear/concise picture of their customer/prospective customer and should tailor their message(s) to those folks.

You know … interactive ads, QR codes, information that interests/invites the viewer into the ad.

This new approach adds value to your content, adds value to the marketer and most importantly; adds value, interest, satisfaction to the viewer.

Equality – When there are viewing options, people will make the selection that is right for their budget – time/money – and will continue to watch everything including their bottom line.  

The right ads placed around the right content and available to the right viewer will be as valuable to folks as paying a higher subscription fee as long as studio/service management and marketers understand and appreciate the consumer relationship.

Sure, it will take time to build that following, trust  and relationship.

Wall Streeters won’t see the value in it because if you don’t meet their projections they’ll lower the value of your stock and sell off anyway.

But the boom days of adding streaming subscribers at any cost are behind us.  Now management has to focus on user longevity and ARPU (average revenue per user).

Change is happening and change is always uncomfortable.

As Big Adam said in The Adam Project, “It’s not a multiverse! My God, we watched too many movies.”

Consumers proved to pay TV people that people don’t have an endless entertainment budget.

Higher prices for a service encourage subscriber losses and it costs more to get a new subscriber than to keep an existing one–especially if you constantly feed them new, different content and surround it with a flow of added revenue from intelligent advertisers who value your service and your subscribers.

Remember, it’s our budget you’re diddling with and we can switch just like that!

But don’t worry … Blockbuster is hiring!

Andy Marken – andy@markencom.com – is an author of more than 7 00 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software and applications. An internationally recognized marketing/communications consultant with a broad range of technical and industry expertise especially in storage, storage management and film/video production fields; he has an extended range of relationships with business, industry trade press, online media and industry analysts/consultants.