Streaming subscriptions are a good deal, actually

We all complain about the ballooning costs of Netflix and Spotify subscriptions, but new data helps present a counterintuitive case for good value.

It’s a tough time to be a subscriber to Netflix, Spotify, and other streaming services. The cost of a Netflix subscription rose 92% between April 2013 and October 2023 – three times the 36% increase that the McDonald’s Big Mac, itself lamented as a casualty of rampant inflation, has seen in the same time period.

Successive headlines have lambasted the ever-increasing rise of subscription services, which, according to one analysis, have reached nearly $925 a year. “From an industry point of view, it absolutely was always going to happen that the prices were going to go up for streaming services,” says Tony Gunnarsson, an analyst who covers major streaming video platforms at Omdia.

When platforms like Netflix and Spotify were launched, they were obscenely underpriced compared to what they offered – especially when placed next to the legacy ways of consuming media. So it’s little wonder that prices have risen so significantly.

“The whole strategy of Netflix has been to turn us into addicts of streaming and then start hiking the prices,” says Alice Enders of Enders Analysis, a media analyst.

Best value for entertainment

But despite the negative headlines and social media complaints about ballooning costs, a recent analysis by Deutsche Bank suggests that streaming services are among the most affordable entertainment options out there on an hour-by-hour basis.

Deutsche Bank estimates the cost of streaming music and video to be cents per hour of possible consumption – far cheaper than the roughly $1 an hour people pay for cable TV, a fraction of the price of theme parks, which the bank estimates costs around $6 an hour, and less than a theatrical movie, which they peg at costing an average of $7 for every hour of film.

Deutsche Bank believes streaming music services cost around 25 cents per hour of consumption, while Netflix is closer to 33 cents per hour. Not all those thousands of hours will be of interest to every user (true crime aficionados are unlikely to want to spend much time with Bridgerton on Netflix), but even discounting whole genres from the back catalog of streaming services, they're significantly better value than heading to the cinema and cheaper than cable TV.

“The benefit of the bundle is that it sells a bunch of different movies to different customers, and different people get different value from different movies, but you can all watch the movies that give you the most value,” says Michael D. Smith, professor of information technology and public policy at Carnegie Mellon University, who studies the economics of streaming services.

However, a surfeit of streaming services with deep libraries has spoiled consumers into thinking the price would remain artificially low forever. As streaming services have bought up back catalogs and now have to invest in producing their own new films and shows, that investment has to be recouped somehow – and passing on the cost to consumers is the obvious solution.

And with Netflix costing around 20 times less than the equivalent movie ticket, even after years of price increases, it’s still good value, even if it’s a little more expensive than it used to be.

There is also merit to those who say the overall cost of streaming can be expensive. Gunnarsson points out that the data showing individual services are cheaper overall than other forms of entertainment doesn’t tell the full picture. Due to the fragmented nature of which shows and movies are on which platforms, consumers often have to subscribe to multiple services at once to get their entertainment fix. This pushes up the overall price per consumption hour across the whole sector.

Subscription cancellations – empty threats?

The pace of price rises may start to slow as users begin to resist ever-increasing costs. Four in ten Netflix subscribers told pollsters in October 2023 that they would cancel their plans if their subscription prices were raised. In reality, Netflix subscriber numbers have continued on their upward trajectory, even as the firm made its services more hostile to users.

Post-May 2023, when Netflix introduced a crackdown on password sharing, 45 million more people have signed up to the service. Its share price has nearly doubled over the same period.

“Honestly, I think the more important point for your piece is when Spotify and Netflix raise their prices, most people don't cancel their subscription,” says Smith.

“That's all the proof we need that these streaming services deliver more value than they cost.”

This means that despite all the complaints, people may say streaming is too expensive, but when it comes down to it, they vote with their wallets.