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At its newly announced price of $15.99 per month—which will go into effect on October 17th—the ad-free tier of Disney+ is now priced at 64% the cost of renting ($25) and 53% the cost of buying a movie ($30) in the Premium Video-On-Demand (PVOD) pay window. That is 2.3x higher than its debut cost ($6.99) in November 2019.
Disney+ does not seem to be growing enough: It lost 100,000 international subscribers between FY Q2 and Q3 2024. A combination of a password-sharing crackdown in October and higher prices are likely to drive those subscriber numbers lower. Assuming higher churn, sharing crackdowns and price raises over the long run, Disney+ will become a PVOD service more than a streaming subscription service.
NBCUniversal’s Peacock now finds itself facing a similar question both after an enormous success with the 2024 Paris Olympics—it reported a 14-day Total Audience Delivery average of 31.6 million viewers and nearly four times the amount of digital watching time for the Tokyo Olympics—and after a fiscal quarter where it lost 500,000 net subscribers.
The Olympics may be the PVOD event of all sports PVOD events with “300 live events a day” over two weeks. NBCUniversal cannot replicate the scale of consumption or engagement until the 2026 Winter Olympics in Italy, even with the NFL season and the 50th season of Saturday Night Live launching in September, and its blockbuster theatrical hit “Despicable Me 4” streaming in Q4.
This morning Peacock’s X/Twitter account asked, “Well what do I do now?” It seems stuck in the same ”PVOD paradox” as Disney+: Subscription services seeking to capture recurring subscription fees for access to content (e.g., blockbuster movies, TV and major sporting events) that may be better monetized via PVOD.
The question is, how will they resolve it?
Key Takeaway
Peacock’s Olympics success story proves that audiences at scale value the experience of unlimited access to premium content and good product experiences. But, those same market forces behind the success are pushing towards a PVOD model.
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Peacock’s Olympics Win
According to Fast Company, Peacock’s big win at The Olympics was with its product.
The service “won praise from viewers and reviewers for technical and design achievements that let fans quickly find the events and recaps they want” across devices. Peacock has also enabled viewers to” easily switch between a new ‘multiview’ feature showing multiple events at once and individual event streams.” NBC Sports President Rick Cordella suggested to Fast Company that multiview is likely to appear in Premier League broadcasts and NBA broadcasts.
With the Olympics, Peacock had must-watch content at scale for over three weeks. Without the Olympics, it returns to being the subscription service that lost 500,000 net subscribers in Q2.
NBCUniversal’s recent expensive bet on an NBA rights deal implies live sports is the better “moat” for Peacock than its “storytelling moat”—its storytelling expertise and the deep content library. There is no 10-year path to Peacock winning against Netflix with “big IP” or “prime time” entertainment.
For Peacock to win with a “sports moat”, NBA, NFL, WWE and Olympics fans will need "a platform that gets its subscribers addicted to watching their own local and favorite sports teams." But, as Peacock President Kelly Campbell told Fast Company, “An important part of this is about serving the right content to consumers on the heels of the Olympics.” Therein lies one key problem.
A Problem of Economics
Last October, I argued, “Premium VOD and TV Everywhere models seem like better solutions to consumer churn in streaming than doubling down on a monthly subscription model.” The simple reason was the math:
“In the PVOD model, Universal charges as much as $25 to rent a film for 48 hours and $30 to buy a movie as little as 17 days after theatrical release. It keeps 80% of the revenue. $75 million at $25 per viewer is 3 million viewers. Had Universal waited for the movie to go onto Peacock 90 days later, that would have been 3 million who paid $4.99 per month to watch it.”
PVOD delivers a similar outcome to a streaming consumer churning out two to three weeks later but with 5x to 6x the revenues per consumer.
In an ideal world, NBCUniversal could have offered the Olympics as a higher-priced PVOD event for $25 per viewer over two weeks. That would have grossed $790 million based on its average audience, alone. However, that value proposition seems complicated to consumers when Peacock already exists. It also likely results in audiences at a smaller scale, which kills the economics of the lucrative advertising and sponsorship model that has long justified the expensive rights deals to distribute the Olympics ($7.75 billion between 2014 and 2032).
Instead, Peacock’s ad-supported tier at $7.99 per month enabled a PVOD experience for two weeks at a steeply discounted price (25% of owning a movie and 32% of renting one). In other words, it discounted a premium subscription product with a 7% monthly churn rate—according to research firm Antenna—to reach the broadest U.S. audiences possible. That means each month, it will lose a customer for every new one it gains.
From a subscription economics perspective, NBCUniversal is betting heavily on advertising to boost average revenue per user (ARPU). It can charge a lower fee for the ad-supported subscription and then maximize the revenue from advertising sales to get a higher total ARPU closer to its ad-free plan of $13.99.
But, in streaming that approach has its limits: In the increasingly programmatic world of streaming advertising, advertisers may not value these audiences on the Peacock platform the same way as on Amazon or YouTube. As I wrote in July, this dynamic has played out at the upfront negotiations and driven down the CPMs of Peacock, Disney and even Netflix. Premium economics seem further out of reach despite the hypothetical promise of higher ARPU from sponsorship and advertising.
The Paradox
Peacock’s Olympics data proves that audiences at scale value the experience of unlimited access to premium content and good product experiences. However, the Olympics are every two years and Peacock is priced on a monthly or annual basis.
A fair counterquestion to Kelly Campbell's Peacock sales pitch, above, is what if Peacock does not have the “right content”?
This question is less about the library and more about “The New Economics and Technology of Consumer-Driven Storytelling” I wrote about last week. The more consumers become empowered as storytellers, the less they will need Peacock's content library. That is already playing out as platforms like YouTube, TikTok, Epic Games’ Fortnite and Roblox each capture increasingly more attention with alternatives to premium legacy media content.
That means market forces will push Peacock increasingly into PVOD territory against the objectives and ambitions of NBCUniversal and Comcast management. The outcome will be a model that is far more valuable to consumers but not enough to justify recurring monthly subscription fees.
Watch Disney
In this light, Disney’s approach to pricing seems notable because—as I tweeted last week—all available consumption data suggests Disney+ is a PVOD service that is priced too low. Consumers pay too little to stream a handful of old blockbuster titles—“Moana” and “Encanto” topped Nielsen’s Top 10 streaming movies in 2023—and to access popular new ones like recent box office hits “Deadpool & Wolverine” and “Inside Out 2”.
Like Peacock, Disney+ seems inevitably headed down a path where its subscription product will not deliver economics that reflect the premium value of its content library—including its past and recent blockbusters—whereas the economics of a PVOD offering will.
The tension, now, is that it seems like no one in senior management at either company understands the customer journeys they have built in the pursuit of chasing Netflix. Neither consumers nor advertisers alike value their subscription products enough to justify their existence on an ongoing basis.
So, basic market forces are pushing Disney and Comcast management to toss out their subscription strategies. There are no obvious answers in a paradox so those teams are unwilling to do so. We may just have to sit back and watch market forces do their destructive work.