Building the SVOD Pricing Model

  • Leah Zitter
  • November 26, 2019

The subscription video on demand (SVOD) world, with 116 services and growing, is a crowded field with intense competition. One way these streaming platforms differentiate themselves is through strategic pricing methods to price their services.

Here’s the run-down.

Apple (NASDAQ:AAPL)

Price strategy:  Penetration where prices are set low for market share and raised once this objective is achieved

Cost:

  • $4.99 a month
  • Promotion: One-year free trial with the purchase of a new iPhone, iPad, Apple TV, iPod Touch, or Mac.

You get 12–38 TV series with 43 titles in development – all ad-free premium original content. Producers include Oprah Winfrey, Steven Spielberg, J.J. Abrams, Octavia Spencer, and Reese Witherspoon.

Further insight Apple has only nine original shows on its roster, which means it’ll take time for audiences to get hooked and for it to expand its platform. In the meantime, Apple aims to attract through sterling stars and content, use shows to market its Apple products and, gradually, raise its prices until it expands its library and subscription base. The low price of $4.99, which is the cheapest of all the major streaming services, and it’s free trial position it to get its initial subscriber base. 

Netflix (NASDAQ: NFLX)

Pricing strategy: Premium pricing where a strong competitive advantage exists for the company

Cost:

  • Basic plan: Recently raised from $8.99 to $9.99 per month
  • Standard plan with HD quality: Recently raised from $10.99 a month to $12.99 a month
  • Premium plan with four simultaneous streams recently raised from $13.99 to $15.99.
  • Free trial period: 30 days

Netflix Basics gives you unlimited viewing of high-quality original content with a global ad-free content library of 5,192 TV series and 3,729 movies.

Further insight: Netflix is price-inelastic, meaning its consumers are hooked on Netflix’s high-quality content and ready to pay more to retain their subscription. With 58 million US and 130 million worldwide subscribers – 36% stream Netflix compared to 6.5% of Hulu Plus and 13% of Amazon Prime – Netflix, King of SVoD, is in a league of its own. As long as Netflix continues investing more than $6 billion in its programming – that’s double that of HBO and five times as much as 21st Century Fox’s FX or CBS’ Showtime –  they’ve concluded they can raise their prices. 

Hulu Plus

Pricing strategy: Price skimming, where the company starts off with a high initial price which it lowers to attract a price-sensitive segment of the population as competitors enter the market

Cost:

  • Basic plan (with ads): Recently dropped from $7.99 to $5.99
  • Commercial-free monthly plan: $11.99
  • Free trial period: 30 days

Hulu Plus gives you the full season and all past episodes of thousands of streamed TV shows and movies, including CBS Sports Network, CNBC, Disney, ESPN, Food Network, Fox Business, Fox News, Golf, HGTV, HLN, and Lifetime. 

Further insight: With studies suggesting Netflix would lose consumers because of its price increase, Hulu reversed direction slashing its price instead. Their price reduction also comes at a time when consumers are beginning to question the OTT charges hitting their wallets, according to Diffusion Group.

Amazon Prime (NASDAQ:AMZN)

Pricing strategy: Penetration later Premium

Cost:

  • Monthly plan: $12.99 per month; standard annual Amazon Prime membership costs $119 per year
  • Discounts: Prime Student membership is $6.49 per month; EBT and Medicaid holders $5.99 per month.
  • Free trial period: 30 days

Amazon Prime Video comes with unlimited streaming of music, 2,011 TV shows, and 22,834 videos. Members receive all of Amazons’ Prime benefits that include free fast shipping for eligible purchases, exclusive shopping deals and selection, unlimited reading, and more.

Further insight: When Prime Video kicked-off in 2016, Amazon adopted penetration pricing to undercut Netflix’s price by a dollar while upselling consumers on its products. It also reduced only by a dollar to avoid the impression they were an inferior market. Three years later, Amazon switched to premium pricing on the basis that its consumers are hooked to its unparalleled Amazon Prime benefit and immensely popular Amazon’s Fire TV device 

How Millenials Respond to SVOD Pricing Strategies

Studies show that Millennials select for high-quality original content, with 71% of subscribers citing original content as their reason for subscribing to streaming services. A Deloitte Media Trends Survey found that Millennials opt for Netflix, Hulu, Amazon Prime – in that order – and even Millennials notorious for wanting free content said they would pay more for original content. Our own Streamlytics research found that most African-American Millennials over-indexed for content, too. 

At the same time, Northwestern students told university researchers they would cap their subscriptions at $10. This supported our survey where African-American female Millennials said they would, also, take price into consideration when evaluating SVOD platforms. Content mattered to them; price did too.

For more information about Streamlytics or to schedule a demo contact us here.

About Leah Zitter

Dr. Leah Zitter has a Ph.D. in Psychology Research with a focus on Behavioral Neuroscience and over a decade of experience as an analyst, covering emerging technology, innovation, and media. She trained as an investigative journalist at the Center for Near East Policy Research, is a researcher at heart and enjoys exploring technology’s impact on culture and society.