The next phase of the streaming wars

What do the game streaming service Twitch, music app Spotify and video streamer Max all have in common? This week, they all raised prices for at least some of their subscribers, joining what has come to feel like a stampede by digital services of all kinds in 2024 to charge more.

There is no mystery behind this spate of price rises. Streaming may have become the preferred business model for large parts of the media industry, but for most it has also been chronically unprofitable — particularly in the video world, where it has put a severe dent in the multichannel TV model that was long a reliable money-spinner.

For now, the pricing actions have not done much to depress subscriber numbers, encouraging some companies to push through more than one round of increases. But they signal that streaming is entering a new phase, where the headlong race for user growth is over and new forces will determine which comes out on top.

Spotify, founded 18 years ago, has yet to report a profitable year, while the chief executive of the 13-year-old Twitch, now a subsidiary of Amazon, also said in January that it loses money. Warner Bros Discovery, owner of Max, at least broke into the black in streaming last year, making it the first traditional media conglomerate to do so. But it made a negligible profit on more than $10bn of revenue.

One notable thing about the higher subscription costs is that, at least until recently, most streamers chose to hold prices down in a race to attract users. Twitch, which raised the cost of its lowest subscription tier by 20 per cent, to $5.99 a month, had never had a price increase in the US before.

After dipping their toes in the water, though, some are starting to see price increases as a repeatable tactic. Spotify kept its subscription unchanged, at $10 a month, for more than a decade before raising it by $1 last year. This week, it announced another $1, with even bigger percentage increases for family and other premium subscription plans.

Spotify’s subscriber numbers have continued to rise strongly — one reason its stock price has soared fourfold since the start of last year. By 2031, Midia Research forecasts music streamers will be able to push through three more broad rounds of price increases, while also introducing new, higher-priced tiers of super-premium services.

Tatiana Cirisano, senior music industry analyst at Midia, says music streaming has turned out to be a “stickier” service than many might have thought: subscribers tend to stay not just because of a familiar brand, but because they have spent time assembling playlists, while a service’s algorithms have learnt their preferences.

Higher prices are also set to usher in a new phase in the battle between digital services of all kinds. As consumers feel the pinch from paying for multiple high-priced premium services, getting a discount for buying a package of services starts to become more attractive — something that encourages the recreation of the very media bundles that standalone streaming services helped to destroy.

This reflects a familiar pattern in the media business. Waves of unbundling, as old media packages are picked apart, are often followed by re-bundling. Consumers get more for a single payment — though one side-effect is that they also often end up, once again, paying for things they do not want. For media owners, meanwhile, selling a package also lowers overall customer acquisition costs and reduces churn of accounts.

In video streaming, Disney has reported success with adding Hulu to its Disney+ video offering, and is planning to do the same with its ESPN+ sports service. Cross-company bundles are also in the works, with a Disney+, Hulu and Max subscription package promised for later this year.

As these new media bundles start to form, new competitors will loom large. Amazon’s Prime, which combines video with free ecommerce deliveries, and Apple One, which includes six of the iPhone maker’s services, including iCloud storage, have shown Big Tech’s willingness to experiment with unconventional offerings that traditional media companies cannot match. Google has also included access to its latest AI models for some subscribers, though it has not gone as far in bundling all its subscription services together. The potential of these tech groups to combine many different types of services and to up-sell to their billions of users are likely to make them formidable competitors in the next phase of the streaming wars.

richard.waters@ft.com