Farewell to the golden age of cheap television
Is television too cheap? It might not feel like it, with bills for streaming services piling up in your inbox, but in terms of cash, viewers have never had it so good. Netflix has burned billions of dollars to earn and keep your business. Amazon and Apple spend freely in the hope of attracting you to their other services. Every new service, from Mubi to Disney Plus, comes with a tempting offer. Stuck at home, glued to your phone, laptop or TV, you are being courted by the most aggressively generous strategies in entertainment history.
The value may not be obvious, however, as for most UK viewers television costs more than ever. From the early 1990s until recently, the UK had a two tier system. You paid your license fees and received the free channels, or you paid several hundred pounds more a year for satellite or cable. It all depended exactly on your craving for movies or sports, but there was no real half-measure.
“The UK was like a Goldilocks,” says technical writer Benedict Evans. “Half the market had pay TV and was happy with it and half the market was happy they didn’t have it.” Compare that with the United States, where around 85% of homes had cable, and with a chronically underserved European market, and British TV seemed a happy medium.
Not anymore. Thanks to the current abundance of streaming options, television has become a chaotic free-to-play game that seems to get more and more expensive each year. In February, the standard two-device Netflix plan increased from £ 1 to £ 9.99 per month, and the premium multi-screen option suitable for families from £ 2 to £ 13.99 per month. Disney Plus costs £ 5.99 per month or £ 59.99 per year (rising to £ 7.99 per month or £ 79.90 per year for new customers from February 23). Amazon Prime costs £ 7.99 per month, but with commercial benefits. Apple TV Plus costs £ 4.99 per month.
Cultural conversation has also evolved. Even 10 years ago, not having a Sky subscription probably wouldn’t exclude you from the water cooler. Today if you want to be sure Bridgerton, The crown, Small fires everywhere or other gossip class staples, the cost of television has risen sharply. Recently, I signed up for Sundance Now, a channel available on Amazon, only to watch the hit French spy thriller. Office. Not completing it before the free trial expired meant paying another £ 5.99 per month subscription.
The data suggests that I am not alone. “There has been a steady increase in average spending in the UK in recent years,” says Richard Broughton, research director at data analytics firm Ampère, referring to the average household’s annual discretionary spending on products. television – excluding license fees. “It was £ 300 per household per year, and it’s heading towards £ 400.” Most of the new funds have been additive, meaning viewers are increasing their spending, rather than switching packages to Sky. Average spending on streaming services has risen from less than a pound per household in 2010 to almost £ 80 in 2020.
Covid-19 “has accelerated some of the underlying trends,” adds Broughton, “but it’s easy to overstate its impact.” Television is more important when pubs and theaters are closed, but there are signs that spending in the United States may be near its peak. From a peak of more than 100 million households in 2014, cable has seen its numbers drop rapidly. As streaming services have exploded, an average of 3 million households per year have “cut the cord” over the past decade. Last year 6m disconnected – twice the usual rate. The total number of cable subscribers in the United States now stands at around 75 million.
“The overall expense in the United States is about $ 900 per household per year,” Broughton says. “I don’t think that’s really going to change.”
The success of Disney Plus, which has attracted over 100 million subscribers in less than two years, has naturally inspired imitators, and every brand now aspires to a direct relationship with its consumers. Yet there are already signs that many of the new generation of banners will eventually be re-aggregated. It’s hard to get a new Sky subscription without Netflix included, but the cheapest option is £ 25 which gives Sky poor value for money.
Until recently, Netflix was burning money to gain subscribers. This was successful, as the service now has over 200 million paying customers, but it cost over $ 15 billion in loans. The company says further borrowing is unnecessary and the cash flow is positive. Supporters say its breadth, first-come advantage, and the depth of the original lineup give it an unassailable lead over its competition. The group’s astronomical market capitalization joins them. This year, Netflix is releasing one movie per week. At last weekend’s Oscars, it won seven awards, more than any other studio. Its CEO, Reed Hastings, likes to say that he “competes with sleep”.
A more bearish take is that Netflix has sucked in as many valuable US subscribers as possible, that its future expansion will focus on low-value customers in poorer countries, and is vulnerable to rivals who may charge less for more. Last week, its share price fell about 10% after it reported slower-than-expected growth in subscribers.
Despite Netflix’s resistance for years to the introduction of ads, some analysts say they will have to buckle down. “They will have to have a two-tier pricing system [with one including advertising]because it brings you back to the traditional two-stream model, ”says Laura Martin, senior analyst at Needham & Co.“ The problem is, it’s the incumbent. If you’re a new streaming service, the easiest place to get subscribers is to [Netflix], because their customers have already shown a propensity to watch streaming content. “
Banners are not all created equal. Netflix’s business depends on its content, which it has to either buy or manufacture itself. So far, it has kept its prices low to stimulate growth. This month’s price hike shows it can’t do it forever. Its competitors benefit from extensive backlog catalogs or other businesses that allow them to manage their television arm as a loss leader.
“Amazon is able to subsidize its television offering by making margins on consumer products,” Broughton says. They can entice customers with Phoebe Waller-Bridge knowing that they will recoup the millions they pay her by selling dishwasher tablets to her audience. For Apple, he says, their original content is a way to increase the replacement rate of their devices.
For Disney and NBC’s Peacock, there is a well of beloved programs to build on. Peacock’s latest experiment consists of offering a few series of the American version of Office for free, but then charge specifically for that program. It is another possibility for the future that some series – Game of thrones comes to mind – could order entire subscriptions on their own.
“Other companies have 50-year-old libraries where content has been created over a long period of time and have billions of marketing dollars behind it,” says Martin. “Even hit shows from the past, like MASH POTATOES. or I love lucy, which haven’t been released for decades, have a lot of muscle behind them, so they’re very valuable. Netflix is spending money on a show that could be as good as Office, but no one has ever heard of it. By offering a historic IP or new programming at a lower price, Netflix’s rivals will continue to close the gap.
You could say that the price of television is a problem for the market. But the pricing of these services has strong implications for public service broadcasters, especially the BBC. There is consensus that the license fee as it stands is not sustainable, and not only among ideological opponents of the BBC. Earlier this year, the BBC published a report claiming its services would cost £ 450 on the open market. But its engagement is in free fall – the time an adult spent watching the BBC TV show had dropped by 30% in 10 years, especially among young people, the most likely to subscribe to streaming services. . Even framing the argument in these terms, the BBC risks inviting an end-to-end comparison with Amazon and others. It’s a dangerous game: the BBC’s total income is just under £ 5 billion a year; Amazon’s overall income is the same amount in a week.
“I am amazed that British politicians act as if we have the same argument about the BBC as 20 years ago,” says Evans. “It’s completely different. Technology has thrown the cards in the air, and no one knows where they will end up.
For better or worse, news and entertainment will suffer the consequences of this great restructuring for decades to come. In the original account of Goldilocks, the heroine is so frightened by her encounter with bears that she runs away screaming into the woods, never to be seen again.
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This article has been edited to correct Peacock’s connection to NBC