Last month Disney announced it would begin offering an ad-supported subscription for its video streaming platform, Disney+, by late 2022. Major players in video streaming services like Disney, Paramount Plus, Netflix, and HBO Max are ramping up their pricing strategies in what appears to be a price war. The current battle: how many subscribers can one platform acquire?
A price war is defined as purposeful pricing decisions that aim to increase sales and net market share by undermining competitors. As one of the more visible components of a product offering, price can sway customers from one company to another, especially for nonessential products or services like video streaming. In 2021, new market entrants, small-scale stragglers in comparison to platforms like Netflix and Disney+, were beginning a price war of their own over the most price sensitive customer segment: “a price war has broken out among several of the newer platforms. As they battle to get cost-conscious consumers to notice them, baby streamers have been serving up some particularly attractive deals in recent weeks.” 1
This intense focus on increasing the number of subscriptions seems to be significantly fueled by investors who want to see continually improving metrics: “Disney is under pressure from investors to meet subscriber growth goals and faces an uphill battle to attract more paying customers after meteoric growth during the streaming service’s first year.” 2 After establishing themselves as significant market share holders, releasing an ad-supported version is a move to meet demand for increased subscriber growth and improved user metrics.
“Other media companies are seeing notable share declines too, as Wall Street investors have begun looking beyond the subscriber additions reported by media companies to look at other metrics like churn rate, market share and content spend.” 3
While they have yet to announce the exact price, the new subscription will likely be priced lower than their other products to attract more price sensitive customers. Currently, the least expensive service is $7.99 per month, 4 so it is fair to assume an ad-supported subscription will be lower than that. Introducing this ad-supported version means Disney will have to consider product line pricing or price lining. This is a pricing strategy for a line of related products. To differentiate this new subscription from their existing products, Disney will have to analyze its price points, which are established for various products in a line to reflect the different benefits of each item. Determining the best price to communicate the value of this new product will also allow them to understand potential cannibalization of existing products at the introduction of the new subscription.
With any product or service, determining the pricing objectives – the goals of a pricing strategy – is part of the overall value proposition. The customers’ perception of price, value, and their needs have to be in balance with the firm’s branding as well as financial and marketing objectives. There are three pricing strategies that Disney likely uses for its video platform: penetration pricing, value pricing, and competitor-based pricing.
Initially, Disney and its video streaming competitors were using the penetration pricing strategy, which aims to maximize market share and can cause high barriers to entry for new market entrants. Other streaming platforms may struggle to reach customers, or they are forced to find creative alternatives for attracting subscribers as firms compete for the greatest market share. Because of this strategy, “The price of admission for those fighting the streaming wars will continue to escalate, projected to jump 10 percent in 2022 to $140.5 billion for the nine biggest media and technology companies.” 5
In this industry, low-cost ad-supported subscriptions have been an avenue for reaching the most price sensitive customers who either do not have the means to pay upwards of $14.99 per month or do not wish to spend that much on a nonessential service. Some reports show that “83% of consumers using a paid streaming service said they would be willing to try an ad-supported model to save money on subscription fees.” 6 With an aggressive goal to have “230 million to 260 million Disney+ subscribers by the end of fiscal 2024,” 7 Disney has to undertake new strategies to gain market share, including attracting customer segments it has not yet attracted or regaining customers it has lost.
This could prove difficult with many companies increasing price due to “reasons including high inflation and increased spending on creating original content.” 8 However, “they’re still competing for the low-price segment of customers.” 9 So, how do they attract customers who value low price when they have to increase prices? Creating an additional product line accomplishes a few things at once; it appeals to more customers with a low-cost option, increases subscribers and market share, and adds a new stream of revenue by charging advertisers who wish to promote through their platform.
“the battle for new subscribers has reached a ferocious pitch as consumers try to limit household spending and become more discerning about which streaming services to sign up for. It also highlights how ads have added to revenue growth for streaming services.” 10
Disney may also be using a value pricing strategy, which involves using price to communicate the value or benefits of a product or service to customers. Adding a lower-priced subscription to their product line communicates to customers that the higher-priced subscriptions are worth more, improving the perceived value of their other products in comparison. On top of this, streaming companies are luring customers with offers like discounted annual subscriptions and bundling multiple services.
Disney, for example, “has offered a cheaper annual plan for Disney+ … giving its best superfans the chance to lock in a low price for a whopping three years.” 11 Annual subscriptions can reduce churn rate and communicate value to customers because purchasing a year-long subscription at a discounted rate appears to be a better deal in comparison to purchasing on a month-to-month basis.
Customers also have an option to purchase a subscription for Disney+, ESPN+, and Hulu. Three subscriptions purchased as one for a lower price than purchasing all three individually suggests the product has a better value for its price. This bundled subscription also appeals to wider audiences with options for “more general interest TV series and live sports.” 12 Streaming services continue to increase their spending, “driven by competition to attract and keep subscribers, expand programming to reach broader global markets, and provide coverage of sporting events.” 13 Sports programming in particular is important for streaming services because NFL games alone comprised “75 of the top 100 highest rated shows on TV last year.” 14
Lastly, Disney may be using a competitor-based pricing strategy, which involves choosing price based on historical and current pricing patterns of competitors or the industry. While other services like Amazon Prime do not offer a low-priced option, other brands are proving its usefulness. For example, Hulu’s ad-supported subscription is $6.99 per month 15 and Paramount is $4.99 per month. 16 Disney is trying to improve their competitive advantage by doing the same, something their competition is noticing: “Paramount Global CEO Bob Bakish says Disney Plus’ decision to launch a cheaper, ad-supported version later this year is ‘validation of the strategy.’” 17
Streaming services currently face pressure from investors to show results through subscription growth rate and other user metrics like churn rate. Disney is working to reach these goals with strategic pricing to gain the most market share, communicate value of their products to customers, and improve their competitive advantage. Once released, the newest product in their streaming services line will attract price sensitive customers to increase revenue and market share with its low-cost, ad-supported features.
Questions marketing managers would consider:
- Three pricing strategies were discussed in this article: penetration pricing, value pricing, and competitor-based pricing. What other pricing strategies exist, and what are the best circumstances to use them?
- How can new market entrants compete with Disney and other companies who hold large portions of the market?
- Why is pricing an important aspect of marketing strategy?
- If you worked for Disney, what would you do to promote the new subscription before its release later this year?
References
1 Adalian, J. (11 February 2021). The Streaming Price Wars Have Begun. Vox Media, LLC. https://www.vulture.com/2021/02/streaming-price-wars-customer-churn.html
2 Whelan, R. & Feuer, W. (4 March 2022). Disney+ to Roll Out Cheaper, As-Supported Subscription in Late 2022. The Wall Street Journal. https://www.wsj.com/articles/disney-to-roll-out-cheaper-ad-supported-subscription-in-late-2022-11646405231
3 Bloom, D. (11 January 2022). Streaming Wars Price Tag Continues To Mount, Likely To Top $140 Billion This Year. Forbes. https://www.forbes.com/sites/dbloom/2022/01/11/streaming-wars-price-tag-continues-to-mount-likely-to-top-140-billion-this-year/?sh=45c8e4fb5565
4 Whelan, R. & Feuer, W. (4 March 2022). Disney+ to Roll Out Cheaper, As-Supported Subscription in Late 2022. The Wall Street Journal. https://www.wsj.com/articles/disney-to-roll-out-cheaper-ad-supported-subscription-in-late-2022-11646405231
5 Bloom, D. (11 January 2022). Streaming Wars Price Tag Continues To Mount, Likely To Top $140 Billion This Year. Forbes. https://www.forbes.com/sites/dbloom/2022/01/11/streaming-wars-price-tag-continues-to-mount-likely-to-top-140-billion-this-year/?sh=45c8e4fb5565
6 Whelan, R. & Feuer, W. (4 March 2022). Disney+ to Roll Out Cheaper, As-Supported Subscription in Late 2022. The Wall Street Journal. https://www.wsj.com/articles/disney-to-roll-out-cheaper-ad-supported-subscription-in-late-2022-11646405231
7 Whelan, R. & Feuer, W. (4 March 2022). Disney+ to Roll Out Cheaper, As-Supported Subscription in Late 2022. The Wall Street Journal. https://www.wsj.com/articles/disney-to-roll-out-cheaper-ad-supported-subscription-in-late-2022-11646405231
8 Cerullo, M. (15 February 2022). After roping in cord-cutters, streaming services are hiking their prices. CBS News. https://www.cbsnews.com/news/cord-cutters-netflix-amazon-prime-streaming-prices-inflation/
9 Cerullo, M. (15 February 2022). After roping in cord-cutters, streaming services are hiking their prices. CBS News. https://www.cbsnews.com/news/cord-cutters-netflix-amazon-prime-streaming-prices-inflation/
10 Whelan, R. & Feuer, W. (4 March 2022). Disney+ to Roll Out Cheaper, As-Supported Subscription in Late 2022. The Wall Street Journal. https://www.wsj.com/articles/disney-to-roll-out-cheaper-ad-supported-subscription-in-late-2022-11646405231
11 Adalian, J. (11 February 2021). The Streaming Price Wars Have Begun. Vox Media, LLC. https://www.vulture.com/2021/02/streaming-price-wars-customer-churn.html
12 Whelan, R. (9 February 2022). Disney’s Earnings Show Rebound in Disney+, Parks Businesses. The Wall Street Journal. https://www.wsj.com/articles/disney-seen-reporting-tepid-growth-at-streamer-disney-11644407213?mod=article_inline
13 Bloom, D. (11 January 2022). Streaming Wars Price Tag Continues To Mount, Likely To Top $140 Billion This Year. Forbes. https://www.forbes.com/sites/dbloom/2022/01/11/streaming-wars-price-tag-continues-to-mount-likely-to-top-140-billion-this-year/?sh=45c8e4fb5565
14 Bloom, D. (11 January 2022). Streaming Wars Price Tag Continues To Mount, Likely To Top $140 Billion This Year. Forbes. https://www.forbes.com/sites/dbloom/2022/01/11/streaming-wars-price-tag-continues-to-mount-likely-to-top-140-billion-this-year/?sh=45c8e4fb5565
15 Hulu. (22 February 2022). Hulu (ad-supported) plan. Hulu, LLC. https://help.hulu.com/s/article/what-is-hulu
16 Maas, J. (8 March 2022). Paramount CEO Says Disney Plus Launching Ad-Supported Option Is ‘Validation of the Strategy.’” Variety Media, LLC. https://variety.com/2022/tv/news/paramount-plus-ads-disney-plus-strategy-bob-bakish-1235198970/
17 Maas, J. (8 March 2022). Paramount CEO Says Disney Plus Launching Ad-Supported Option Is ‘Validation of the Strategy.’” Variety Media, LLC. https://variety.com/2022/tv/news/paramount-plus-ads-disney-plus-strategy-bob-bakish-1235198970/
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