Beyond the simplicity of watching what you want when you want, one of the allures of streaming is the satisfaction that comes from severing ties with your cable provider and your monthly cable bill.
But what happens when streaming services start acting more like your local cable monopoly and raise prices? As the cost of a la carte programming goes up, we may just see cord-cutting become less popular. We're not there yet, but as these services start requiring customers to pay higher rates for their content, their value propositions become less apparent.
A rising tide
Netflix (NASDAQ:NFLX) is the latest streaming company to raise prices, though apparently under the guise of a new subscription service, and so far only in Europe. Industry site Cordcutting.com says users in various countries are seeing new plans for access to 4K ultra HD and high dynamic range (HDR) streaming content, with prices ranging from 17 to 20 euros ($19.90 to $23.40), but also with limitations imposed on the number of screens able to be used. Cordcutting.com calls the new price structure "a sort of price hike in disguise."
Almost all new Netflix original series are shot in HDR, but you need its Premium package at $12 per month to get four-screen viewing. What the service seems to be testing out in Europe is whether it can herd viewers out of its lower-cost tiers into a new ultra tier by limiting availability of 4K and HDR programming to just one or two screens.
Netflix isn't the only one raising rates. Dish Network's (NASDAQ:DISH) Sling TV recently raised the price of its basic Orange service for new subscribers from $20 per month to $25, with existing customers seeing the price hike in August. Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) earlier this year increased the subscription cost of YouTube TV to $40 per month, from $35, making it similar to Hulu with Live TV and Sony's PlayStation Vue.
Amazon.com did just increase the cost of its Prime annual membership from $99 per year to $119, though it seems unlikely anyone joins the loyalty program simply for the streaming movies Amazon adds as a perk.
Becoming like cable to beat cable
As price creep becomes more commonplace, cable TV no longer looks quite as expensive in comparison. You can get basic cable for around $15 to $20 per month, but local news channels really doesn't give you a comparable viewing experiencing, particularly when you add in the original content services like Netflix and HBO bring to the screen.
Adding a few cable amenities does bump up your price, but you get a better experience, though it's easy to quickly run up your bill to over $100 per month by choosing "gold" packages.
The problem for streamers comes when the price disparity narrows until you're not necessarily saving all that much. While you do have ease of use and a large selection of content to choose from, the process isn't necessarily as seamless as you find with cable.
In most cases, users have to download individual apps to access a channel and pay for each separately. When watching a program, if you want to switch to a different provider, you close down the app and open up another one. It's a cumbersome process, though the price differential and the quality of the original programming -- Netflix just broke HBO's 17-year streak of winning the most Emmy nominations of any network, cable provider, or streaming service -- consumers have largely ignored the hassle.
Price is what you pay, value is what you get
Some services might be able to get away with charging customers more, so long as their delivering quality shows. Two years ago, the Digitalsmiths division of TiVo (NASDAQ:TIVO) found a good portion of Netflix subscribers would be willing to pay more the service: 8.3% would pay between $16 and $19 a month for streaming and 6.5% would pay up to $23. Heck, there was even a small percentage (1.4%) that would pay $32 a month.
While there was a 39% plurality that said between $12 and $15 was the sweet sport for a Netflix subscription, it was probably more telling that 32% would refuse to pay more than they were currently paying.
The last time Netflix raised rates, lower subscriber growth was blamed for the increase. As Netflix just missed its own internal projections on subscriber growth by a wide margin, those higher pricing limits may end being tested. It's still adding a lot of new subscribers -- 670,000 in the U.S.; 4.4 million internationally -- but those numbers are well below what it had expected.
Part of cable's success has been in its ease of use and a set-it-and-forget-it functionality. It's expensive, but it's sticky. Streaming services are only just getting to the point where they're making their capabilities as mindless as cable's. While content is a big factor in the consumers' willingness to pay, if in the process the services end up costing nearly as much as cable with no real discernible difference in content quality, they may end up eliminating one of the key elements of why people cut the cord in the first place.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Netflix. The Motley Fool has a disclosure policy.