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Streaming Services And The Theory Of Perceived Value


Earlier this week BNN Bloomberg anchor Jon Erlichman tweeted out the list below, which sparked another round of comments and think pieces along the lines of "I thought we were going to save money with streaming TV, but this costs as much as cable."



Few things in this world generate more bad takes than the subject of streaming media. And given that, it's not surprising that most of the people who retweeted this list focused on entirely the wrong message. First of all, almost no one is subscribing to all of these services at once. Most surveys about streaming media usage show the average person subscribes to between 2 and 4 services. This list also includes the price for the most expensive ad-free option of Hulu & CBS All-Access. Which is in both cases less popular with subscribers than the version with ads. Although the truth is that the ad-free version is in reality "less ads," but that's a discussion for another time.

Another factor to consider about this list is that "subscriber" is often very different than "someone who directly pays for the service." For instance, since Amazon Prime Video comes bundled as part of the Amazon Prime service, it's fair to say that almost no one is paying directly for the video. It's just there - for free - and I have real doubts that it would be a viable product if subscribers were paying a direct monthly fee just for the video. Especially since the Amazon Prime Video interface is set up as much to encourage rentals and purchases of recent movies & TV shows as it is to give viewers a menu of free video to stream.

Hulu is another service that is frequently discounted. It's bundled for free with a Hulu Live TV subscription, Spotify offers a $4.99 student subscription which bundles Hulu, Spotify & Showtime and there are other ways you can get Hulu for free or very close to it. Hulu frequently discounts its monthly fee to $5.99 for the ad-supported version and they have recently offered an even cheaper rate to former subscribers in an effort to lure them back.

And of course, the just-launched Apple TV+ is not just priced at a budget cost of $4.99 per month. You can also purchase an annual subscription for $49.99 a year or receive a free year of the service when you buy one of a number of Apple devices. Disney+ is also being discounted in a number of ways, including a new deal with Verizon which gives its customers a free year of Disney+ to new and existing customers.

The lesson from all of this is that the temptation is to look at some ideal monthly subscription fee charged by a streaming service & use that as a benchmark for a service's "value." But in reality, what a service is worth in the real world is a concept called "perceived value." This is how it's described in the business dictionary:

A customer's opinion of a product's value to him or her. It may have little or nothing to do with the product's market price, and depends on the product's ability to satisfy his or her needs or requirements.

Media industry analysts and reporters often parrot the argument that "content is king." And while content is important, a bigger factor in the success of a media business is perceived value to the customer. How valuable is the content to the customers you're targeting? Is your user interface friendly enough that it doesn't lessen the value of your content in the eyes of frustrated users? There are a lot of factors that go into how customers perceive the value of a streaming service. And because it's all a bit squishy & difficult to quantify on a spreadsheet, it's often overlooked by industry analysts.

For instance, subscribers numbers are important. But to a certain extent, subscriber numbers are also a lagging indicator of perceived value. The customers subscribe in large BECAUSE the price matches or is lower than their perceived value of the service. It's why the cost of Amazon Prime Video is rolled into a package that includes everything from free music to free shipping. That's the customer's perceived value of the Amazon content. 

It's also why both Apple TV+ & Disney+ are priced low and extensively discounted. It's not that their respective content doesn't have value or that customers won't eventually pay a higher monthly fee at some point down the line. The pricing is a reflection of the reality facing both companies. Apple has all original content, but not an especially large amount of it. And for all of the intellectual property owned by Disney and headed for Disney+, trying to charge $9.99 a month for a service with no track record of creating interesting new streaming shows would be huge numbers of times more difficult than its current roll-out plan. 

Perceived value is why all of those hot takes arguing that the $6.99 pricing for Disney+ was the "beginning of the end for Netflix" were wrong. That price isn't the result of an attempt to "take down" Netflix. It is a reflection of Disney's assumption of the services perceived value to the average streaming customer. It's likely that some small percentage of Netflix customers might drop the service for Disney+. But even Disney doesn't expect that to be a trend in the short or medium term. Instead, they're angling on being most customer's choice for the last of the services they'll probably add to their lineup. And everything they are doing - from the aggressive lineup of new shows to discount pricing - is in service of that effort.

Perceived value also has an impact of the cost of established content, especially the cost of tentpole shows like "The Big Bang Theory." If you are the executives running the still-to-launch streaming service HBO Max, you have to juggle a lot of different priorities while still creating a service customers will want to add to their monthly line-up. As in the case with Disney+, few people in the short-term are going to cancel their Netflix or Hulu accounts in order to add HBO Max. Your big challenge is Disney+, which is going to launch with an impressive library of beloved IP, from Star Wars to The Simpsons. Sure, HBO Max is going to have everything currently on HBO. But just keeping the current HBO subscriber base isn't enough, especially since it's likely most of those subscribers will just end up getting a free HBO Max subscription as part of their cable or satellite TV package.

While HBO Max has a wide number of its own familiar properties in the Warner Studio library, it also needs a title that gives the new streaming service a particular buzz with potential customers. One that says "HBO Max is serious about being a success." Which is a large part of why they made the decision to pay some undisclosed but reported as "multi-billion dollar" deal for the five-year rights to stream "The Big Bang Theory." And that is on top of the $425 million it is reported to have spent on a five-year streaming deal for "Friends."

In both cases, HBO Max was in a position of almost having no choice but to pay for "The Big Bang Theory" and "Friends," no matter what the cost. When customers consider whether or not to subscribe to a new service, their perceived value of the service is a mix of cost, content and a slightly squishy feeling about whether or not the service will be aggressive and innovative with their programming. HBO Max will be the most expensive major streaming service on the market, so it needs to compete on library and buzz. Having both "Friends" and "The Big Bang Theory" on the service ensures positive buzz. But that buzz and customer satisfaction comes at a financial cost. In both cases, not only is WarnerMedia forgoing the huge payday they would get from selling the streaming rights to someone else, but they are also contractually forced to pay top dollar for both series. 

In the case of "The Big Bang Theory," it's likely to be losing financial decision for HBO Max. Even given the current HBO subscriber base, the service will face a lot of challenges rapidly growing its subscription base. And despite the value of the show to potential subscribers, growing the service rapidly enough to fully monetize the show's costs seems unlikely. Which is where we get back to perceived value. The perceived value of "The Big Bang Theory" is worth much more than the financial considerations. HBO Max couldn't afford to let the show go to a rival service, even if it costs the company hundreds of millions. Letting the popular sitcom go to a rival would be seen as a lack of seriousness and commitment to the future of HBO Max. Winning that perception battle is worth whatever it cost to get the show.

Now it's worth mentioning that the overlords at AT&T are hedging their quietly hedging their bets on the near-term success of HBO Max. They notably only paid for the domestic streaming rights for "Friends" and "The Big Bang Theory," allowing WarnerMedia to make a lot of money selling off the international rights. And despite arguing that HBO Max will have an international presence, WarnerMedia recently renewed an output deal with Sky that will give that European television giant Sky the rights to HBO & Turner content in seven European countries. 

I've just touched on the highlights of this complex subject and I'll continue to parse it out in the future. But I'll wrap up with two finals things to consider. I've long thought that the new Comcast/NBCU streamer Peacock will ultimately launch as an AVOD (a free, advertising-supported streaming service). It's too late to market and despite the inclusion of content like "The Office," the perceived value of the service isn't large enough to justify paying for it in the minds of most potential customers. 

As for CBS All-Access, they've made a bet that having a bit of new "Star Trek" programming and the inclusion of a live CBS affiliate feed will continue to make it a worthwhile value for enough customers. Which is why CBS has opted to sell off streaming rights to some of its big shows, such as "NCIS" (to Netflix) and "Elementary" (to Hulu). They have also sold off the international streaming rights to rivals, which reportedly more than pays for the production costs of the shows.

Have some feedback on this piece? Email Rick at This email address is being protected from spambots. You need JavaScript enabled to view it. and follow him on Twitter at @aysrick.

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