Streaming video is getting pretty pricey. Excluding free trials, teaser rates, and ad-supported
viewing, Paramount Plus, Peacock, and Prime Video are $12, Disney Plus is $14, Netflix is $15.50,
and Hulu is $18 every month. That doesn't sound like much if you're only using one service,
but according to public polling, most of you have around three streaming subscriptions,
2.8 to be exact. If you're in the very reasonable position of wanting to watch
the Handmaid's Tales, Star Trek Discovery, and Reacher, assuming you're not sailing the open
seas, Iron Maid, you're looking at a monthly bill of $42. But not to worry, because streaming
services have the answer. Bundles. Amazon bundles Prime Video with its Amazon Prime membership,
which obviously includes free expedited shipping. HBO Max is now available through YouTube as
one of its premium channels, and in Canada, TELUS is offering a phone plan that comes with
Netflix, Disney Plus, and Prime Video for an additional, wait a second, hold on, this is just
cable, this is exactly what happened with cable, what? Okay, let me explain. When Netflix became
the first paid-on-demand video streaming service in 2007, the market for at-home films and TV series
was fundamentally different. The typical cable customer was paying at least $60 a month for
118 channels, only 13% of which they even watched. Not only that, but it was getting more and more
expensive. Between 1996 and 2008, the price of cable in the US rose at roughly double the rate
of inflation. And if you wanted to watch an older show, your options were to hope for a rerun or
wait for a physical release that might never come. Now, cable is expensive for a few reasons,
including infrastructure maintenance and lack of competition among cable companies,
but another contributing factor is upstream consolidation. In the 1990s, the number of
cable channels ballooned, and large content providers like Disney, NBC, and Viacom bought up
and merged with competitors. Cable bundles began in part as a way to simplify sale and
distribution of large numbers of channels. Selling channels individually would have been
prohibitively expensive, and a logistical nightmare due to cable's technological limitations.
Not only that, but bundles also had the advantage of increasing the perceived value of the deal
in the eyes of customers. It's like a fast food restaurant that only sells combo meals
instead of single items. Separately, that $8 burger, $4 fries, and $2 soda would cost $14,
but together, there may be only like 12 bucks. That might be a good deal from your perspective,
but it's also a good deal for the restaurant, because it means that you have to buy all three
instead of just the burger. But once the market consolidated into an oligopoly,
those few major content providers had the power to push cable distributors
to carry their rapidly growing stable of low and mid-quality channels alongside their Class A
certified bangers. That consolidation also removed consumers' ability to shop around for a cheaper
deal. Thus, our burger combo gets more and more questionable sides until the meal deal costs
over $50, even though you still only want to eat $12 of it. Part of Netflix's ability to disrupt
that calcified market was technological. It could provide users with a large library of
on-demand titles without having to worry about recording inconveniently timed broadcasts or
paying steep late fees on forgotten DVD rentals. But another major factor was simply the price.
In 2008, an unlimited monthly subscription to Netflix cost only $9, less than renting
three recent releases from Blockbuster at the time. Netflix didn't have everything on its
platform, but streaming was simple, convenient, and relatively cheap. So why didn't it stay that way?
The problem with Netflix's business model was that, much like cable, once it was obvious how
profitable it was going to be, everyone wanted in on it, and nobody was willing to keep selling
their streaming rights for bargain basement prices. As rival streaming services proliferated,
they competed for and bid up the price of popular content, which was still mostly coming from the
same heavily consolidated market that pushed up the cost of cable. In fact, those same content
providers were often the best positioned to launch their own rival streaming platforms.
Paramount Global, nay Viacom, has Paramount Plus, NBC has Peacock, Warner Bros has HBO Max and
Discovery, and Disney owns Disney Plus, Hulu, and ESPN Plus. These companies then make the obvious
choice of treating their own content as exclusives. In a crowded field of competitors, it becomes more
and more difficult to stand out. Early services like Netflix and Hulu can no longer compete based
on technological superiority, so instead they need to differentiate in terms of programming.
Streaming services without their own production ARM start spending the bulk of their money on
licensing a few hot properties while the rest of their libraries slowly dwindle. In 2014,
Netflix US had over 6,000 streaming titles. They now have fewer than 4,000. Plus, a lot of
cheaply licensed shows on these services are clearly just there to give the illusion of bountiful
options, not because they're a real draw to viewers.
It becomes difficult, if not impossible, for the average viewer to find a single service that
offers all or even most of their favorite shows. WAN Show might even wind up with several seasons
split across two services. How this happens is that one service will pick up the first few
seasons of a show on an exclusive contract in order to test how it performs. If it does poorly,
they won't license the later seasons. Then maybe another service picks up the rest and the show
gets popular. This drives traffic over to the first site, which might decide to renew their
existing license, locking the absurd split in place for the next several years. I just want to watch
the show. But in order to compete with other companies on exclusives, streaming services
create their own in-house production studios. And while it's relatively cheap to simply
license and stream already popular content, original content comes with a fair amount of
both overhead and risk. This is a big part of the incentive behind Netflix cancelling so many
promising shows after a single season, before they really have time to find their audience.
These shows are so expensive that if they don't succeed immediately at pulling in new viewers,
the company just bails. Though, to be clear, this is not the primary reason why Netflix now
costs $1550. A significant proportion of the increase can be chalked up to simple inflation.
Assuming an average rate of 2.43% inflation between when Netflix launched at $9 a month in 2007
and now in early 2024, that $9 equals around $13.33 in real terms, leaving us with an actual
increase of only $217. Higher licensing costs and higher overhead make it harder to compete on price.
But there's no point in being cheap if it means you won't have anything left to draw in customers.
Worse, there's essentially a finite number of potential customers willing to pay for any
streaming service. Never mind yours specifically. The average person in the US is already subscribed
to multiple services and around half of us are paying for at least one we don't regularly use.
As the content becomes more fractured, so does its audience. As the audience becomes more fractured,
the margin on these expensive exclusives becomes narrower and narrower as each subscriber
supports a proportionally larger fraction of the production costs.
Now if you, as a company, can't cut costs, you can still increase the perceived value of your
product. You can still bundle. You can bundle together multiple streaming services. You can
bundle with your own parent companies, other products. You can bundle with other unrelated
services. You can even bundle with cable. What? You can, like HBO Max, bundle with YouTube to at
least decrease the slight friction that comes with switching over to a different app. At least then,
even if every individual service is given at a discount, the customer pays more overall.
This expensive, vulcanized system has, perhaps understandably, pushed more and more viewers
towards piracy. Which is why the current fight between streaming services and cable is over
time-sensitive content like live events, especially sports. Passionate sports fans who want to watch
their teams' games in real time not only need to have cable, but usually at least two or three
different streaming subscriptions. For example, NFL games are typically streamed live on Paramount
Plus, which carries local CBS stations. However, in the fall of 2022, two games for the Tennessee
Titans were exclusive to Prime Video outside the Nashville Broadcasting Area. Not only that,
but the Titan September match against the Buffalo Bills was only available on Monday Night Football,
which is exclusive to ESPN. Now I'm just going to come home from work and be mad still. I just
want to tackle somebody. This clearly isn't the best possible deal for viewers, but it's the
natural extension of a clear set of incentives. Cord cutting can't be cheap for the same reason
that cable couldn't be cheap, because the shows you want to watch are expensive to produce,
and the heavily consolidated industry that makes them wants you to pay for the whole bundle.
But we're not going to make you pay to bundle this video with another one from TechWiki.
Check them all out. After you liked the video, if you liked it, disliked it, if you disliked it,
check out our other videos. I already said that. Comment below with video suggestions, and don't forget to subscribe and follow. Okay, now you can bundle up. It's cold out there.