Netflix And Amazon Resume Boiling The Frog, YouTubers Learn About Make Goods
1. Netflix And Amazon Resume Boiling The Frog
Put a frog in a pot of water over a low flame and it will allegedly not notice the change in water temperature until it is too late.
Which is why “boiling the frog” is Silicon Valley’s favorite metaphor for the practice of slowly raising prices every few months in a way that consumers will not notice or object to.
It’s a lesson that has not been lost on streaming services either, all of which gently nudge prices upwards every few months. So that my Hulu Live TV account, which cost me around $45/month back in 2018 is now at $101.50.
Or why both Netflix and Amazon are raising prices this month to just ever so slightly south of the once unthinkable $20/month mark.
Why It Matters
To be fair, Netflix and Amazon are two very different beasts when it comes to pricing.
Netflix’s customers are paying for a streaming service while Amazon’s are more than likely paying for free two-day delivery.
Regardless, in both cases, they are asking viewers to pay almost $20 each month ($19.99 and $19.98, to be exact) for subscriptions that just a few years ago were closer to half that.
The other interesting piece is that the price hike increases the gap between the ad-supported and ad-free tiers on both services, something I have been encouraging for a while.
This is less important for Amazon who, in perhaps the cleverest act of the streaming era, magically converted all their subscribers to ad-supported about two years ago. Meaning anyone wanting to watch without ads would need to pony up an extra $3/month for the privilege, something perhaps one-third to one-quarter of all subs bothered to do (Amazon does not release stats, so it depends on whose guesswork you trust.)
Either way, the majority of Amazon subs are in the ad-supported tier and that has made them the largest source of CTV ad inventory. So anything, even this new dollar-a-month price increase, that lets them keep most of those viewers in the ad-supported tier is a big win, given the importance of advertising to their overall business model.
For Netflix, the stakes are much higher.
Netflix has been struggling for years to figure out a way to move more US subscribers to its ad-supported tier.
There are a number of reasons they’ve been struggling, though I suspect that a decade of convincing people that Netflix was better than linear because it was ad-free is not easy to reverse.
The second factor here is that the price difference between ad-free and ad-supported Netflix was not that great. For someone who only planned to subscribe for a few months to watch a particular show, the price gap was not enough to make them consider the ad-supported product.
And while the new price gap— $20 for ad-free, $9 for ad-supported—may be enough to convince some people, my gut says they will need to make that gap considerably wider to get more people to throw in the ad-free towel. I’m thinking $25/month or even $30, especially if the $30 will get you things like 4K and extra streams that are in the current $27/month “Premium” tier.
It’s not just a Netflix problem either.
All of the SVOD services with ad-supported tiers are going to have to do some form of this in order to drive more viewers off of their ad-free service.
The danger of this though is what we’ve been calling ‘15 Million Merits” after the Black Mirror episode: a world where around 15% of viewers, mostly high-income, highly-educated viewers, pay to avoid ever seeing ads on TV. These are the same viewers who will have ad blockers on their phones and all their browsers too.
Meaning that the only place advertisers will be able to reach them is during live sporting events. Which then makes those properties even more valuable.
But first things first: all of the non-Amazon streaming services need to figure out a way to get a sizable enough number of viewers onto the ad-supported tier so as to justify those high CPMs.
And bigger price gaps between ad-free and ad-supported might just be the ticket.
What You Need To Do About It
If you are in the streaming industry, you really have no choice but to raise prices. Every single major app set prices artificially low in order to build a customer base. Now you have no choice but to “boil the frog” and raise prices slowly, at least on your ad-free tiers.
Just be aware that at some point, the frog dies.
Meaning you can’t keep raising prices indefinitely and so you need to focus on growing your ad business.
That’s why I have been recommending you all launch some sort of free tier that requires signup. It lets you expand your ad-supported base. Promote your older programs. And provides an easy way to re-enroll former subscribers by offering them come-on deals.
It’s really a no-brainer.
If you are an advertiser, you need to ask all sorts of hard questions about whether the audience you are getting from the ad-supported tier is similar to the one that’s on the ad-free tier. I have heard much skepticism about this from some (but not most) agency types. Mostly on the order of “they want me to pay top dollar for a bunch of cheapskates.”
And if you are on the ad sales team at a streaming service, I am sure that sentiment is not news to you, but you do need to figure out a way to deal with it.
At least for now
2. YouTubers Learn About Make Goods
If YouTube really wants to be TV, then its creators are going to need to learn about the less glamorous parts of the industry, including things like “make goods.”
Which, for the uninitiated, is a linear TV term for additional inventory an advertiser is given for free when the ad that ran did not reach the guaranteed audience they paid for.
My buddy Tim Peterson has a great piece about this on Digiday this week, about Donut Media, a YouTube-based company that sees close to half its views now happening on actual TV sets.
And what is unusual, Peterson notes, is that Donut is starting to make guarantees around things like video views, social impressions and pre-roll impressions, and offering make-goods if those guarantees are not met.
Something that is quite new for players in the YouTube ecosystem and a further sign of the TV-ification thereof.
Why It Matters
One of the key things stopping wider adoption of TV-like guarantees is the lack of anything close to a standardized independent third-party measurement system for YouTube.
Another is the fact that some YouTube viewing is organic, some is paid and some is targeted. Meaning it’s hard to pinpoint what exactly the publisher was actually guaranteeing.
Both of which are going to become a bigger issue as brands seek to move more of their actual TV spend (versus “digital ad spend”) to the platform.
The other issue is that a TV make-good is somewhat well-defined: an ad on the same or similar show on the same network in the same broader time slot.
Whereas on YouTube, that is unclear. Is it another episode of the same series? A vertical Short? Another series from the same creator?
Here again, that thing jargon lovers delight in calling “best practices” is non-existent.
Yet, anyway.
So the whole thing is a bit of the Wild West.
What You Need To Do About It
If you are an advertiser and you are moving some of your TV budget to YouTube then you need to be very explicit about what the deal entails. Specifically, what exactly is the publisher guaranteeing, how is it being measured and what specifically constitutes a “make good”—what sort of placement would you accept?
If you are a creator/publisher you need to think about that too. The answer is going to require a lot of testing—what will the market bear, how much education do the agency teams need, how many pretty four-color charts will it take to convince them?
If you are YouTube you need to figure out what your role is here. Do you let all the publishers figure it out on their own, or do you step in and try to create standards.
There are compelling arguments both ways.
If you are in the industry and you are not watching Tim Peterson’s brilliant videos then you are committing literal murder.
Or at least missing out on a good time.
Your call.
