Disney+, Hulu, Netflix and ESPN+ all raised their prices this month. This likely won’t be the end as the price of entertainment continues to ebb higher and higher.
The companies all blame higher production costs. But it’s more complicated than that with an industry that had to contend with inflation, a boom and bust of subscription services and, this year, writers’ and actors’ strikes that continue to shut down the production of scripted shows and movies.
The entertainment industry as a whole has had a rough few years. Streamers and broadcasters have had to navigate a pandemic and the rising cost of production. Inflation has forced many studios to make tough decisions to maintain profitability. Production studios are still feeling the aftershocks of obstacles that first cropped up almost four years ago. This makes maintaining financial stability difficult.
Inflation Takes Hold
The rising cost of, well, everything has had a ripple effect on various productions. Just today, the BBC said it would cancel Doctors — one of the broadcaster’s longest running dramas — after 23 years due to “super inflation in drama production.”
Back in 2021, soaring inflation rocked Hollywood’s production of content. Set designers told The Hollywood Reporter that the cost of materials had “shot through the roof.” In addition to contending with high demand, shipping delays, and supply shortages, materials like plywood, steel, glass and paint all saw price jumps, according to the report. In conjunction, these elements put a significant strain on the industry’s ability to build sets within budget.
While 2021 was a busy year for filmmaking with more viewers working remotely, thus having more free time to watch shows and movies, according to Take1 Insurance, studios were met with more obstacles the following year with the spread of the Omicron variant.
Studios had to put measures in place to ensure the cast and crew were safe while producing films and shows, which meant dragging out the time and expense. Tom Cruise famously exploded at the crew of Mission Impossible: Dead Reckoning Part One for failing to follow those protocols, since a positive test would mean production would have to shut down.
Last year, Charter Communications’ Spectrum announced its exit from the original programming business. The move was a result of climbing production and COVID protocols costs alongside competition from streaming services, Deadline reported.
In short, the measures companies took to ensure a “safe and healthy environment” weren’t free, according to the entertainment insurance company.
Streaming services struggled post-pandemic
Streamers also saw a mass influx of subscribers in 2020, which led the media companies to invest big in content. Disney+ reportedly shelled out $75 million for the worldwide rights to Hamilton. Netflix spent $450 million to land the rights to Rian Johnson’s Glass Onion and a second follow-up to mystery hit Knives Out.
At the height of the pandemic, reports said that many Americans were paying for up to six streaming services. Since then, numbers have mostly returned to pre-pandemic with Americans paying for about three or four subscriptions. This past June, 38% of Americans said they were planning to cancel or limit the number of streaming services they pay for. Others said they planned to downgrade to cheaper options or share passwords with friends and family.
As a result, those media companies that spent big and gambled on continued subscriber growth scrambled to adjust.
In 2022, Comcast, Disney, and Paramount lost a combined $8.4 billion on streaming, and are still trying to achieve profitability a year later.
And inflation hasn’t gone away. In August, the Labor Department reported that the Consumer Price Index – the benchmark for inflation – increased 0.2% in July after climbing 3.2% over a year ago. In turn, streaming services increased their fees to recoup losses while customers looked for ways to save money amid economic uncertainties.
Over the last few years, monthly spending on streaming subscriptions has declined 25% from $90 in 2021 to $73 in 2023, according to data from Parks Associates. Increasingly, viewers are opting for ad-supported video on demand, or AVOD, and free ad-supported streaming TV, or FAST. AVOD and FAST channels include apps like Freevee, Crackle, Pluto TV, Tubi and Roku Channel. Time spent watching AVOD and FAST services increased 6% from 2022 to 2023 according to TiVo’s Video Trends report.
The result has been media companies more focused on profitability over wildly spending on content, which has resulted in higher subscription rates.
The strain of the strikes
Earlier this year, Hollywood writers and actors went on strike seeking higher pay and job security. The writers struck a deal with studios last month, but SAG-AFTRA remains on the picket line.
The viewer migration to streaming services has impacted how writers and actors get paid, and not for the better. Streamed shows have fewer episodes and longer breaks between seasons in comparison to broadcast TV series resulting in smaller paychecks. There are also far fewer residuals, or those checks paid out to writers and actors after the show airs.
The strikes sent shockwaves across the entertainment industry and, in many cases, brought content production to a grinding halt. Despite writers back to work, multiple TV shows and movies still hang in the balance for the 2023-24 broadcast season. The motion picture and sound recording industries have lost 17,000 jobs “reflecting strike activity,” according to an employment report from the U.S. Bureau of Labor Statistics.
Companies are also feeling the effects of the strikes in their bottom lines. Last month, Warner Bros. Discovery said it could see the strikes costing $300 million to $500 million in adjusted earnings.
But it’s unclear what the financial impact is once the disputes are resolved. The writers were able to negotiate better terms and benefits, which will just increase the cost of production. An actors’ agreement could do the same.
Whether the media companies will continue to pass those higher costs to subscribers or if they’ve realized enough is enough is a question everyone will be wrestling with in the coming months.