Streaming: Are consumers fed up with subscription costs yet?

Streaming services have raised subscriptions costs in recent years with a potential for prices to keep increasing down the line. With inflation making its way through consumer goods and services, how are consumers feeling about these price increases? Will they continue to opt in to select services or should streaming companies like Amazon Prime Video (AMZN) be worried?

D’Amore-McKim School of Business at Northeastern University Associate Dean of Research and Professor of Marketing Koen Pauwels joins Wealth! to give insight into how consumers are reacting to rising subscription costs from streaming providers.

"If you're the kind of consumer who is relatively price insensitive and you don't want to be bothered with ads and you want all of your shows to be on one kind of data provider so you don't have to lose the time to figure out which show is where, then you're going to settle [and] select for this ad-free tier," Pauwels points out, "which also means that Netflix (NFLX) can continue raising prices on that one because their pool of consumers choosing for this non-ad service is going to be more restricted, more selective who don't care about prices that much."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video transcript

BRAD SMITH: Every other day, it seems like there's a new streaming service. Asking for another $10 to $20 a month from us. The viewers with this plus rising inflation, how are consumers dealing with those costs? Joining us now, we've got Koen Pauwels who is the Northeastern University D'Amore-McKim school of business associate Dean of research and Professor of marketing. Great to have you here with us today. Let's start there as we've seen some of the pricing power really be showcased by these companies, the streaming companies that are putting service and product into market.

What does that mean for the consumers? And where have we seen some of that deterioration of propensity to continue to spend into the different tiers of service offerings?

KOEN PAUWELS: Well, great to be here. Thank you. I think first of all prices will increase. I think this is pretty obvious to all consumers.

BRAD SMITH: Even more from here.

KOEN PAUWELS: No, sorry.

BRAD SMITH: Even more price increases from this juncture.

KOEN PAUWELS: I would say so and part of what is driving this is the competition. So streaming services used to be for some companies heavily subsidized. There were part of their broader offering for instance. And so that basically allowed them to spend millions, sometimes billions of dollars to provide content that they hope would spill over to other services. Key example is probably prime video and prime here. Now that those companies are basically becoming more efficient. And really questioning how much of that spillover is really happening.

You will see that first of all for instance, the competition for Netflix is going to be less active. I foresee going forward, which allows Netflix, then again to keep on raising prices. The other thing you notice is the ad supported tier. So what marketers like myself love about offering the consumer choice is the self-selection. So if you're a consumer who really is upset with the increasing prices more than you are with ads. Then you're likely to self-select for an ad supported tier.

If you're the consumer who is relatively price insensitive and you don't want to be bothered with ads. And you want all of your shows to be on one major provider. So you don't have to lose the time to figure out which show is where, then you're going to self-select for this ad free tier. Which also means that the Netflix can continue raising prices on that one because their pool of consumers choosing for this non ad service is going to be more-- are going to be more restricted, more selective to don't care about prices that much.

BRAD SMITH: Yeah. Koen, we were just taking a look at the pricing options that are currently in market among and across the streaming service providers right now. I think another huge consideration is the content. And what the actual service level that you're getting from these providers is how do you see that moderating and the quality of content, the amount of titles and how consumers are expected to engage with that?

KOEN PAUWELS: Well, I think every service is really convinced that content is King and that they really have to continue adding more and more. They're trying to do that smarter than before, I would say. So you're going to see a lot of attempts to to bundle. I also expect consolidation in the industry, there is going to be some mergers. We don't know exactly what's going to happen. But you're going to see some bundles coming up. So in the beginning streaming services was hey we get rid of cable which was a big bundle of stuff.

You only pay for what you want. And that sounds really appealing until you realize, wait a minute, my family is subscribing to three or four services per per month. It's going to cost a lot. And so these bundles are going to be much more interesting to people who are subscribing to three or four services at a time.