One of the major benefits of cutting the traditional TV cord and switching to streaming video services was supposed to be the lower cost of service. But because broadcasters dictate the licensing cost of content for both services, it was inevitable that the sector would increasingly mimic its traditional cable counterparts. As a result, numerous streaming video services used the July 4th holiday to obfuscate an industry wide price hike, driving up the monthly subscription costs of services like AT&T’s DirecTV Now, Sony’s Playstation Vue, and Dish Network’s Sling TV.
AT&T’s price hike, a $ 5 bump for all of the company’s DirecTV Now streaming TV tiers, is likely getting the most attention because it’s the precise type of hike AT&T repeatedly stated wouldn’t be happening if regulators signed off on the company’s $ 86 billion merger with Time Warner. AT&T lawyers repeatedly claimed during the recent court battle with the DOJ that the deal would lower prices, not raise them:
“The evidence overwhelmingly showed that this merger is likely to enhance competition substantially, because it will enable the merged company to reduce prices, offer innovative video products, and compete more effectively against the increasingly powerful, vertically integrated ‘FAANG’ [Facebook, Apple, Amazon, Netflix, and Google] companies,” AT&T told US District Judge Richard Leon in the brief…Price benefits should flow to consumers quickly, AT&T’s filing said. “[C]ertain merger efficiencies will begin exerting downward pressure on consumer prices almost immediately [after the merger]” AT&T wrote.
As with most megamerger promises of synergies and consumer benefits, that obviously didn’t happen. AT&T took on such a massive debt hit from the deal, it’s now looking to raise rates wherever and however possible, whether that means a price hike for TV streaming, or obnoxious and misleading fees that can help quickly and covertly pad AT&T’s bottom line.
As we’ve long seen with traditional cable, streaming ops are imposing the rates in quiet unison, engaging in what I’ve affectionately long referred to as “wink wink, nudge nudge” competition. In addition to price hikes at AT&T, Dish and Sony, Netflix says it’s also experimenting with a higher-priced tier specifically targeting customers with 4K and HDR capable sets. It’s a tricky balancing act; these services want to pass on higher programming rates demanded by broadcasters, but don’t want to undermine the entire reason that customers cut the cord and head to cheaper streaming alternatives in the first place.
On a positive note, many correctly point out that streaming is still generally seen as a real value when compared to traditional cable, something that should remain true for the forseeable future:
“Even after the current wave of price hikes, live TV streaming services are generally much cheaper than the average traditional TV bill. For packages that include major broadcast networks, regional and national sports coverage, and major news networks, the price for live TV streaming still floats around $ 40 to $ 50 per month. That’s less than half the average $ 106 that U.S. homes spent on traditional TV service last year, according to Leichtman Research Group.”
But that value could quickly be eroded if streaming operators continue to mimic their legacy counterparts, something that’s less of a strain for streaming operators that are vertically integrated broadcasters themselves (Comcast, AT&T); yet another advantage compounded by the repeal of net neutrality. Streaming operators have numerous other pitfalls awaiting them as the streaming video wars truly get underway, including the rise of exclusive content deals that could force customers back to piracy if they’re forced to hunt and peck between too many pricey exclusivity silos.
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