WEBVTT

00:00:00.000 --> 00:00:05.520
Streaming video is getting pretty pricey. Excluding free trials, teaser rates, and ad-supported

00:00:05.520 --> 00:00:12.080
viewing, Paramount Plus, Peacock, and Prime Video are $12, Disney Plus is $14, Netflix is $15.50,

00:00:12.080 --> 00:00:17.520
and Hulu is $18 every month. That doesn't sound like much if you're only using one service,

00:00:17.520 --> 00:00:22.080
but according to public polling, most of you have around three streaming subscriptions,

00:00:22.080 --> 00:00:26.800
2.8 to be exact. If you're in the very reasonable position of wanting to watch

00:00:26.800 --> 00:00:32.080
the Handmaid's Tales, Star Trek Discovery, and Reacher, assuming you're not sailing the open

00:00:32.080 --> 00:00:38.720
seas, Iron Maid, you're looking at a monthly bill of $42. But not to worry, because streaming

00:00:38.720 --> 00:00:45.200
services have the answer. Bundles. Amazon bundles Prime Video with its Amazon Prime membership,

00:00:45.200 --> 00:00:50.400
which obviously includes free expedited shipping. HBO Max is now available through YouTube as

00:00:50.400 --> 00:00:55.200
one of its premium channels, and in Canada, TELUS is offering a phone plan that comes with

00:00:55.200 --> 00:01:00.240
Netflix, Disney Plus, and Prime Video for an additional, wait a second, hold on, this is just

00:01:00.240 --> 00:01:05.040
cable, this is exactly what happened with cable, what? Okay, let me explain. When Netflix became

00:01:05.040 --> 00:01:11.680
the first paid-on-demand video streaming service in 2007, the market for at-home films and TV series

00:01:11.680 --> 00:01:16.720
was fundamentally different. The typical cable customer was paying at least $60 a month for

00:01:16.720 --> 00:01:23.440
118 channels, only 13% of which they even watched. Not only that, but it was getting more and more

00:01:23.440 --> 00:01:29.920
expensive. Between 1996 and 2008, the price of cable in the US rose at roughly double the rate

00:01:29.920 --> 00:01:34.880
of inflation. And if you wanted to watch an older show, your options were to hope for a rerun or

00:01:34.880 --> 00:01:40.240
wait for a physical release that might never come. Now, cable is expensive for a few reasons,

00:01:40.240 --> 00:01:44.400
including infrastructure maintenance and lack of competition among cable companies,

00:01:44.400 --> 00:01:49.600
but another contributing factor is upstream consolidation. In the 1990s, the number of

00:01:49.600 --> 00:01:55.360
cable channels ballooned, and large content providers like Disney, NBC, and Viacom bought up

00:01:55.360 --> 00:02:01.120
and merged with competitors. Cable bundles began in part as a way to simplify sale and

00:02:01.120 --> 00:02:05.600
distribution of large numbers of channels. Selling channels individually would have been

00:02:05.600 --> 00:02:11.040
prohibitively expensive, and a logistical nightmare due to cable's technological limitations.

00:02:11.040 --> 00:02:16.160
Not only that, but bundles also had the advantage of increasing the perceived value of the deal

00:02:16.160 --> 00:02:21.120
in the eyes of customers. It's like a fast food restaurant that only sells combo meals

00:02:21.120 --> 00:02:27.920
instead of single items. Separately, that $8 burger, $4 fries, and $2 soda would cost $14,

00:02:27.920 --> 00:02:33.280
but together, there may be only like 12 bucks. That might be a good deal from your perspective,

00:02:33.280 --> 00:02:38.240
but it's also a good deal for the restaurant, because it means that you have to buy all three

00:02:38.240 --> 00:02:43.280
instead of just the burger. But once the market consolidated into an oligopoly,

00:02:43.360 --> 00:02:47.840
those few major content providers had the power to push cable distributors

00:02:47.840 --> 00:02:54.240
to carry their rapidly growing stable of low and mid-quality channels alongside their Class A

00:02:54.240 --> 00:03:00.080
certified bangers. That consolidation also removed consumers' ability to shop around for a cheaper

00:03:00.080 --> 00:03:05.760
deal. Thus, our burger combo gets more and more questionable sides until the meal deal costs

00:03:05.760 --> 00:03:12.080
over $50, even though you still only want to eat $12 of it. Part of Netflix's ability to disrupt

00:03:12.080 --> 00:03:17.440
that calcified market was technological. It could provide users with a large library of

00:03:17.440 --> 00:03:22.480
on-demand titles without having to worry about recording inconveniently timed broadcasts or

00:03:22.480 --> 00:03:28.400
paying steep late fees on forgotten DVD rentals. But another major factor was simply the price.

00:03:28.400 --> 00:03:34.800
In 2008, an unlimited monthly subscription to Netflix cost only $9, less than renting

00:03:34.800 --> 00:03:39.200
three recent releases from Blockbuster at the time. Netflix didn't have everything on its

00:03:39.200 --> 00:03:45.760
platform, but streaming was simple, convenient, and relatively cheap. So why didn't it stay that way?

00:03:45.760 --> 00:03:51.040
The problem with Netflix's business model was that, much like cable, once it was obvious how

00:03:51.040 --> 00:03:55.840
profitable it was going to be, everyone wanted in on it, and nobody was willing to keep selling

00:03:55.840 --> 00:04:01.200
their streaming rights for bargain basement prices. As rival streaming services proliferated,

00:04:01.200 --> 00:04:07.040
they competed for and bid up the price of popular content, which was still mostly coming from the

00:04:07.040 --> 00:04:12.400
same heavily consolidated market that pushed up the cost of cable. In fact, those same content

00:04:12.400 --> 00:04:17.360
providers were often the best positioned to launch their own rival streaming platforms.

00:04:17.360 --> 00:04:24.560
Paramount Global, nay Viacom, has Paramount Plus, NBC has Peacock, Warner Bros has HBO Max and

00:04:24.560 --> 00:04:30.640
Discovery, and Disney owns Disney Plus, Hulu, and ESPN Plus. These companies then make the obvious

00:04:30.640 --> 00:04:36.720
choice of treating their own content as exclusives. In a crowded field of competitors, it becomes more

00:04:36.720 --> 00:04:42.320
and more difficult to stand out. Early services like Netflix and Hulu can no longer compete based

00:04:42.320 --> 00:04:47.760
on technological superiority, so instead they need to differentiate in terms of programming.

00:04:47.760 --> 00:04:52.640
Streaming services without their own production ARM start spending the bulk of their money on

00:04:52.640 --> 00:04:58.560
licensing a few hot properties while the rest of their libraries slowly dwindle. In 2014,

00:04:58.560 --> 00:05:05.760
Netflix US had over 6,000 streaming titles. They now have fewer than 4,000. Plus, a lot of

00:05:05.760 --> 00:05:10.640
cheaply licensed shows on these services are clearly just there to give the illusion of bountiful

00:05:10.640 --> 00:05:13.840
options, not because they're a real draw to viewers.

00:05:19.840 --> 00:05:25.280
It becomes difficult, if not impossible, for the average viewer to find a single service that

00:05:25.280 --> 00:05:31.280
offers all or even most of their favorite shows. WAN Show might even wind up with several seasons

00:05:31.360 --> 00:05:36.240
split across two services. How this happens is that one service will pick up the first few

00:05:36.240 --> 00:05:41.600
seasons of a show on an exclusive contract in order to test how it performs. If it does poorly,

00:05:41.600 --> 00:05:46.640
they won't license the later seasons. Then maybe another service picks up the rest and the show

00:05:46.640 --> 00:05:51.840
gets popular. This drives traffic over to the first site, which might decide to renew their

00:05:51.840 --> 00:05:57.840
existing license, locking the absurd split in place for the next several years. I just want to watch

00:05:58.160 --> 00:06:03.440
the show. But in order to compete with other companies on exclusives, streaming services

00:06:03.440 --> 00:06:08.160
create their own in-house production studios. And while it's relatively cheap to simply

00:06:08.160 --> 00:06:13.360
license and stream already popular content, original content comes with a fair amount of

00:06:13.360 --> 00:06:19.280
both overhead and risk. This is a big part of the incentive behind Netflix cancelling so many

00:06:19.280 --> 00:06:23.680
promising shows after a single season, before they really have time to find their audience.

00:06:23.680 --> 00:06:28.800
These shows are so expensive that if they don't succeed immediately at pulling in new viewers,

00:06:28.800 --> 00:06:38.240
the company just bails. Though, to be clear, this is not the primary reason why Netflix now

00:06:38.240 --> 00:06:43.440
costs $1550. A significant proportion of the increase can be chalked up to simple inflation.

00:06:43.440 --> 00:06:50.000
Assuming an average rate of 2.43% inflation between when Netflix launched at $9 a month in 2007

00:06:50.000 --> 00:06:58.240
and now in early 2024, that $9 equals around $13.33 in real terms, leaving us with an actual

00:06:58.240 --> 00:07:08.320
increase of only $217. Higher licensing costs and higher overhead make it harder to compete on price.

00:07:08.320 --> 00:07:13.120
But there's no point in being cheap if it means you won't have anything left to draw in customers.

00:07:13.120 --> 00:07:18.080
Worse, there's essentially a finite number of potential customers willing to pay for any

00:07:18.080 --> 00:07:23.600
streaming service. Never mind yours specifically. The average person in the US is already subscribed

00:07:23.600 --> 00:07:28.640
to multiple services and around half of us are paying for at least one we don't regularly use.

00:07:28.640 --> 00:07:34.320
As the content becomes more fractured, so does its audience. As the audience becomes more fractured,

00:07:34.320 --> 00:07:39.680
the margin on these expensive exclusives becomes narrower and narrower as each subscriber

00:07:39.680 --> 00:07:43.120
supports a proportionally larger fraction of the production costs.

00:07:43.200 --> 00:07:48.560
Now if you, as a company, can't cut costs, you can still increase the perceived value of your

00:07:48.560 --> 00:07:54.480
product. You can still bundle. You can bundle together multiple streaming services. You can

00:07:54.480 --> 00:07:59.040
bundle with your own parent companies, other products. You can bundle with other unrelated

00:07:59.040 --> 00:08:06.160
services. You can even bundle with cable. What? You can, like HBO Max, bundle with YouTube to at

00:08:06.160 --> 00:08:10.800
least decrease the slight friction that comes with switching over to a different app. At least then,

00:08:10.800 --> 00:08:16.160
even if every individual service is given at a discount, the customer pays more overall.

00:08:16.160 --> 00:08:21.920
This expensive, vulcanized system has, perhaps understandably, pushed more and more viewers

00:08:21.920 --> 00:08:27.280
towards piracy. Which is why the current fight between streaming services and cable is over

00:08:27.280 --> 00:08:32.640
time-sensitive content like live events, especially sports. Passionate sports fans who want to watch

00:08:32.640 --> 00:08:37.840
their teams' games in real time not only need to have cable, but usually at least two or three

00:08:37.840 --> 00:08:43.040
different streaming subscriptions. For example, NFL games are typically streamed live on Paramount

00:08:43.040 --> 00:08:49.040
Plus, which carries local CBS stations. However, in the fall of 2022, two games for the Tennessee

00:08:49.040 --> 00:08:55.440
Titans were exclusive to Prime Video outside the Nashville Broadcasting Area. Not only that,

00:08:55.440 --> 00:09:00.800
but the Titan September match against the Buffalo Bills was only available on Monday Night Football,

00:09:00.800 --> 00:09:05.920
which is exclusive to ESPN. Now I'm just going to come home from work and be mad still. I just

00:09:06.000 --> 00:09:11.440
want to tackle somebody. This clearly isn't the best possible deal for viewers, but it's the

00:09:11.440 --> 00:09:17.280
natural extension of a clear set of incentives. Cord cutting can't be cheap for the same reason

00:09:17.280 --> 00:09:22.160
that cable couldn't be cheap, because the shows you want to watch are expensive to produce,

00:09:22.160 --> 00:09:27.360
and the heavily consolidated industry that makes them wants you to pay for the whole bundle.

00:09:27.360 --> 00:09:31.920
But we're not going to make you pay to bundle this video with another one from TechWiki.

00:09:32.320 --> 00:09:36.560
Check them all out. After you liked the video, if you liked it, disliked it, if you disliked it,

00:09:36.560 --> 00:09:45.840
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.