Netflix will report its Q3 2023 earnings on Wednesday. Expect the company to have made more headway with its password-sharing crackdown. In spite of this, all eyes (and ears) will be on the state of Netflix’s ad business. Last quarter, the company said that revenue from advertising is “not yet material enough” but that it’s confident it will turn into a multibillion-dollar revenue stream. As a result, Netflix will likely detail plans to hike its premium prices (again) as a means to bolster level-priced ad-tier subscriptions.

Streaming Services Are Price-Pinching Users Into Their Ad Tiers

The streaming giants are eager to drive more ad-tier subscriptions. Not only does this yield better margins, but it amasses larger addressable audiences to attract coveted advertisers. Indeed, advertisers care about reach. That’s why Prime Video will soon launch a default ad-supported tier and, for the first time, will upcharge Amazon Prime subscribers to retain their ad-free Prime Video experience. The planned price hikes from both Netflix and Amazon follow last week’s Disney+ premium price increase — its second one this year.

Price Is A Core Driver Of Streaming Cancellations

Forrester’s (just published) data overview report on streaming-service user behavior underscores the role of price in the overall “value equation” that drives streaming service loyalty or churn: The most commonly reported consideration for US streaming users to keep or cancel a service is price, according to Forrester’s 2023 data. And among those who canceled a streaming service in the past year, the most frequently selected reason was that “it was too expensive.”

Yes, Streaming Users Will Tolerate Ads To Avoid Paying Too Much

Over the last five days, Forrester polled US online adults in its ConsumerVoices Market Research Online Community about their attitudes and behaviors regarding ad-free vs. ad-supported streaming tiers. We segmented the 262 respondents who use Netflix, Disney+, or Max. The results of the poll indicate that:

    • Over 80% of ad-supported streaming users who we polled would prefer an ad-free experience but don’t want to pay the extra money for it.
    • The majority (roughly 60%) of ad-free streaming users already feel like they’re paying too much money for an ad-free experience on their streaming service(s).
    • About a third of ad-free streaming users are considering downgrading to an ad-supported subscription tier in order to save money.
    • One in four ad-free streaming users are inclined to NOT pay the extra cost (should their streaming service raise prices again) to maintain an ad-free experience, while a third are undecided.

The Streaming Service That Solves The Value Equation Wins The War

Yes, raising prices will boost revenue for streaming services in the short term, but overusing this marketing lever isn’t sustainable, as consumers expect value: great content at a fair price. Not only are consumers getting no additional value with recent and planned price hikes, they’re, arguably, getting less value. Streamers are already pulling back on content to save money, and the Hollywood strikes have only exacerbated the issue. Content is the product of streaming services. As content quality suffers, so will the companies behind it. Why? Consumers today have lots of choices to satiate their content cravings. That means, when it comes to the streaming market, they have more power than ever.

Forrester clients: Let’s chat more about this via a Forrester guidance session.