How Disney+ is increasing prices by 38%, yet keeping the same price.

In the ongoing trend of digital and streaming services adjusting their prices, it is now Disney+’s turn to make changes. This demonstrates how inflation impacts pricing differently in each industry:

• Some businesses are raising prices due to higher cost bases. 
• Others find themselves caught between elevated costs and reduced customer financial capacity. 
• Streaming services, such as Disney+, appear capable of extracting more value from their customers by implementing price hikes that exceed inflation. They are making bold moves in this direction.

Disney+ serves as a prime example, having recently announced double-digit percentage increases. To understand these changes, I will be focusing on the new pricing for Switzerland (given the international variations).

So far, Disney+ pricing has been straightforward: 12.90 CHF per month. 

This simplicity has its merits, yet its limitations are apparent, particularly in the context of a price hike. Disney+ already raised its subscription fee in 2021, from 9.90 CHF to 12.90 CHF per month. Sticking with a “one-price” model would only allow for another linear price increase, potentially excluding segments with lower current economic willingness to pay. Furthermore, Disney+ suffered a loss of 18 million subscribers in the past year, largely due to the loss of Cricket rights in India. The American market fared little better, experiencing a 1% subscriber decline.

How will Disney+’s new offerings shape up?

• Premium 17.90 CHF per month –  This is the equivalent of today’s one-price offering and represents a whopping 38% price increase from the current 12.90 CHF per month. Premium will include UHD (4K) HDR and Dolby Atmos sound, just as today.
• Standard 12.90 CHF per month – This package will feature reduced quality (HD) and excludes Dolby Atmos sound.
• Lower Tier: 7.90 CHF per month – Partially subsidized by advertising.

Let’s analyse all the crunchy details of this new offering:

• Flexibility: Disney+ departs from the simplicity of a “one-price” approach to adopt a more adaptable “good-better-best” tiered strategy. This is essential for continued price adjustments, particularly in the current economic climate. 
• Leverage Loss Aversion: While a 12.90 CHF offer will persist, the devil is in the details. Existing customers will transition to the new 17.90 CHF plan, unless they opt for a downgrade. This approach effectively enables both scenarios: customers could still pay 12.90 CHF, but they need to act. Beyond the diminished video quality, the act of requesting this change introduces a “fence” between the two plans, aligning customer segments with their willingness to pay. Moreover, Disney+ is leveraging the well-known principle of “loss aversion” (in this case, to the “benefits” they’re used to)
• Premium feeling: Debating whether Dolby Atmos and UHD differentiators sufficiently discriminate among users in terms of monetary value is beside the point. The purpose of the 17.90 CHF higher tier is to attract a premium segment for whom perceived value remains considerably higher. They want to pay more, Disney+ gives them the possibility to do so. How kind!
• New customers & New revenue: Mirroring other streaming platforms, Disney is paving the way for a new revenue stream—advertising. Advertising also serves as a strong differentiator for its plans, allowing Disney to offer an enticing entry price of 7.90 CHF to tap into a new market with minimal risk of cannibalization. 
• The “leading .90” in their pricing remains intact suggesting that. This is just table-stake in today’s streaming pricing. It just works.

Conclusions

In essence, my reading of these price increases is that Disney+ recognizes that inflation and financial constraints do not impact everyone equally. There exists a widespread opportunity to extract more value from their products, even in the current context. Until now, a single-price subscription acted as a “feature,” simplifying customer choices and sidestepping decision paralysis. Concurrently, they tread carefully to avoid losing price-sensitive customers, transitioning toward a more traditional “good-better-best” approach.

I have to admit that I pretty much like this bold and smart approach which demonstrates the power of a thought-off pricing strategy