Streaming services

Streaming services have a difficult business model. The cost of producing (or licensing) content is high, and the revenue from subscriptions or advertisements is low. Fortunately, the ratio of subscribers to movies is high, and the ratio of advertisements to movies is also high. Therefore, the streaming services can balance revenue and costs.

Streaming services can increase their revenue by adjusting subscription fees. But the process is not simple. Raising subscription fees does raise income per subscriber, but it may cause some subscribers to cancel their subscription. Here, economics comes into play, with the notion of the "demand curve", which measures (or attempts to measure) the willingness of customers to pay at different price levels.

Streaming services can decrease their costs by removing content. For licensed content (that is, movies and shows that are made by other companies) the streaming service pays a fee. If they don't "carry" those movies or services, then they don't have to pay. Cancelling their license reduces their cost.

For content that the service produces, the costs are more complex. There is the cost of production, which is a "sunk cost" -- the money has been spent, whether the service carries the movie/show or not. There are also ongoing costs, in the form of residual payments, which are paid to the actors, writers, and other contributors while the movie or show is made available. Thus, a service that has produced a movie can reduce its costs (somewhat) by not carrying said movie.

That's the basic economics of streaming services, a very simplified version. Now let's look at streaming services and the value that they provide to viewers.

I divide streaming services into two groups. Some services make their own content, and other services don't. The situation is somewhat more complicated, because the content-making services also license content from others. Netflix, Paramount+, and Roku all run streaming services, all make their own content, and all license other content to show on their service. Tubi, Frndly, and Pluto TV make no content and simply license content from others.

The content-producing services, in my mind, are the top-tier services. Disney+ makes its own content and buys (permanently) other content to add to its library, and is recognized as a top-tier service. Netflix, Paramount+, and Peacock create their own content (and license some) and I consider them top-tier services.

The services that don't produce content, the services that simply license content and then make it available, are the second-tier services. They are second-tier because their content is available for a limited time. They don't own content; they can only rent it. Therefore, content will be available for some amount of time, and then disappear from the service. (Roku, for example, had the original "Bionic Woman" series, but it is not available now.)

For second-tier services, content comes and goes. There is no guarantee that a specific movie or show will be available in the future. Top-tier services, in contrast, have the ability to keep movies and shows available. They don't, and I think that damages their brand.

Services damage their brand when they remove content, in three ways.

First, they reduce the value of their service. If a service reduces the number of movies and shows available, then they have reduced their value to me. This holds in an absolute sense, and also in a relative sense. If Disney+ removes movies, and Paramount+ keeps its movies, then Disney+ drops in value relative to Paramount+.

Second, they break their image of "all things X". When Paramount+ dropped the series "Star Trek: Prodigy", they lost the right to claim to be home to all things Star Trek. (I don't know that Paramount+ has every made this claim. But they cannot make it now.)

Third, the services lose the image of consistency. On a second-tier service, which lives off of licensed (essentially rented) content, I expect movies and shows to come and go. I expect a top-tier service to be predictable. If I see that it has a movie available this month, I expect them to have it next month, and six months from now, and a year from now. I expect the Disney+ service to have all of the movies that Disney has made over the years, now and in the future. I expect the Paramount+ service to have all of the Star Trek movies and TV shows, now and in the future.

By dropping content, the top-tier services become more like the second-tier services. When Netflix, or Max, or Peacock remove content, they become less reliable, less predictable, less... premium.

Which they may want to consider when setting their monthly subscription rates.