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Let the Profit Taking Begin

Let the Profit Taking Begin

Providers Are Entering "Profit Mode"

June 22, 2021

Last week, Apple announced that it plans to reduce its free trial to Apple TV+ for device purchases down to 3 months (previously it was 1 year). And Disney's CEO clarified that the company has no plans to provide a "free with ads" tier to the service. We may be entering a period in cord-cutting where the major players are consolidating their power over pricing, leaving little hope for consumers who were hoping prices might start backtracking.

Streamer's Spotlight: Bolstered Subscriber Counts Leaves Little Room for Change

This one is simple economics. The rule of supply and demand applies to what we're seeing in the cord-cutting market. When supply is low, but demand is high, prices go up. When supply is high, but demand is low, prices go down. But what about when supply is high, and demand is high?

The answer here is

"not much"

. This is what's known as equilibrium. And the cord-cutting market may finally be reaching that point. So what does "not much" look like in a cord-cutting market where supply and demand are in equilibrium? Two things.

Prices Don't Change Much

If the market is truly in equilibrium, we should expect to see subscription prices for most cord-cutting services stay flat for a while. Of course, there are other factors at play that may likely cause cord-cutting prices to go up (looking at you, inflation). The major players, at this point, are staring each other down. They've fattened their subscriber counts, and they can now stop offering incentives to raw in new subscribers. That means they can start focusing purely on using their existing models to generate profit and not worry about giving stuff away for free (e.g., no more loss leaders) to draw in new customers.

Note that this also isn't to suggest that prices won't increase at all. Some services that were running low on the pricing to draw in customers will push the price up. Disney+ did just that this year. After dropping its free trial, Disney boosted the monthly price by $1.

Free Offers Go Away

Providers focus heavily on data and cost projections. They know exactly how many subscribers they need to generate X profit. Most of the major players appear have hit or are hitting the point where they're comfortable pulling back on offering things for free to subscribers. Apple's reduction of its free trial for device purchases form 1 year to 3 months underscores that reality, as does Disney's CEO stating the service has no plans to give the service away by making it ad-supported.

The fact that free trials are getting shelved is indication enough that we're hitting that equilibrium point that allows service providers to start capitalizing on their numbers for a while.

It's a Delicate Balance

We cord-cutters are a fickle bunch. Providers already know that. And there's some data out that there appears to suggest we're also

getting tired of paying

for half a dozen services. That being the case, how long this point of equilibrium lasts is anyone's guess. But you can guarantee that the service providers are going to milk it for all they can while it lasts.