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SVOD pricing in the age of Disney+

Money splash

The announcement that Disney+ will cost just $6.99 a month when it launches in November creates a new low bar for premium online video services. Like it or not, consumers will use it as a yardstick to judge the value of other services. TV executives might not like how they fair in the comparison.

Discovery DTC service could be too expensive

David Zaslav, Discovery’s CEO, feels he has a golden opportunity to dominate the factual and natural history spaces. Certainly, the exclusive relationship the company has struck with the BBC brings some of the best natural history content ever made to the service he plans to launch next year. He believes Discovery will be able to create “the definitive natural history and factual streaming platform in the world.”

Mr. Zaslav believes such quality content will command a premium price in the market. He thinks he can charge between $7 and $15 a month. Aside from the great content, why does he believe he can charge up to twice as much as Disney+. He cites two reasons. He says scripted content is only half of what people love to watch. The rest, he claims, the service will have. He also thinks “there is really nobody in our space.” On both counts he is wrong.

Sports and news should be lumped in with the unscripted half of content people love. The Discovery service will have neither of these genres. The truth is people spend the bulk of their viewing time, way more than half, with content that Discovery’s service will not provide.

CuriosityStream has built an excellent service around factual and natural history content. It recently moved to a much lower price of $2.99 a month for HD quality video delivery. The service, which was founded by Discovery founder John Hendricks, will launch worldwide.

With Disney+ at $6.99 and CuriosityStream at $2.99, even $7 a month sounds too much for Discovery’s DTC service.

WarnerMedia’s HBO-anchored service

HBO has built a solid presence with HBO Now, notching up over 5 million subscribers and helping to return the premium channel to growth. The new and final season of Game of Thrones has captured the attention of many and is no doubt helping push HBO Now subscriber numbers even higher.

AT&T thinks that HBO can do much more. It is readying a service for beta release later this year with HBO at its core and a host of Warner Bros content include. The hope is that the new service – let’s call it HBO+ – can achieve Netflix-like penetration levels.

However, AT&T has a pricing problem. HBO Now costs $15 a month, twice as much as Disney+ will upon release. With AT&T adding much more content, the company might expect to be able to charge even more for HBO+. After all, AT&T took on a huge debt burden to buy Time Warner Inc. and could do with the content contributing more. With Disney+ and Netflix much cheaper, it’s unlikely many consumers will be ready to spend $15-$20 for HBO+.

CBS All Access in the sweet spot, for now!

CBS reported its Q1 2019 results last week and said it had generated the highest quarterly revenue ever. Acting CEO Joseph Ianniello pointed at three things driving the quarter performance: the advertising revenue generated by the turgid Super Bowl LIII and increases in affiliate and subscription revenues.

The company saw subscribers to its direct-to-consumer services Showtime and CBS All Access surge 71% year-over-year. Mr. Ianiello singled out CBS All Access as having its biggest growth ever in Q1. The release of the new Twilight Zone series and a library with more than 10,000 episodes is helping drive growth.

CBS All Access costs $6.99 a month and users can watch on-demand ad-free by paying $4 more. At least for now, this appears to be a good value to consumers. However, when Disney+ enters the market with great content ad-free at the same $6.99, consumer opinion of the value offered by All Access could change quickly.

The problem for TV providers

As TV providers enter the DTC market, consumers will have the opportunity to assess that content’s unique value for the first time. Previously, there was no real way to assess its value within the big pay TV bundle. Like it or not, consumers will look at Disney+ for $6.99 a month and wonder if Discovery, HBO+, and CBS All Access are worth paying the same or more. TV executives could be in for a big shock when they find out how their content fairs in the comparison.

Why it matters

The big pay TV bundle has prevented consumers from evaluating the true value of most of the TV shows and movies they watch.

As TV programmers launch direct-to-consumer services, consumers will have an opportunity to assess the stand-alone value of their content.

Disney+’s $6.99 a month is a yardstick people will use to make their value assessments.

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