Advertising-Free Streaming Video Is Worth $4 a Month

In comments at a conference last week, CBS Corp. (NYSE: CBS) chief Les Moonves said that each subscriber to CBS’s All Access streaming package is worth about $4 in advertising revenue to the company. All Access costs $5.99 a month, and CBS is mulling $9.99 advertising-free version of the subscription service.

Hulu already offers an ad-free version for $11.99 a month, $4 a month more than the ad-supported version. Hulu is a joint venture of Walt Disney Co. (NYSE: DIS), Twenty-First Century Fox Inc. (NASDAQ: FOXA), and Comcast Corp. (NASDAQ: CMCSA).

That seems to settle the issue of what an ad-supported video streaming service is worth. Or does it? YouTube Red, a subscription service from Google and Alphabet Inc. (NASDAQ: GOOGL), costs $10 a month. According to nScreenMedia that works out to about $2 per month per unique viewer, but also notes that heavy users of YouTube are more likely to choose to pay for the ad-free stream, raising the value of the average subscriber to around $4. The big difference is that YouTube’s music service has been folded into Red, and there is no bigger streaming music service in the world than YouTube.

NBC is testing a $4 a month ad-free streaming comedy service called SeeSo that is expected to launch generally in January. The service has no free, ad-supported stream, and it may offer the first test of the value of the so-called freemium model.
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In a survey completed earlier this year and reported in nScreenMedia, Deloitte found that 71% of streaming video users “valued the fact that their service allowed them to watch ad-free.” Then, to show how difficult (or weird) the streaming business can be, Deloitte also reported that 62% would be willing to watch ads to cut the cost of the service. nScreenMedia comments on the seeming disparity:

Given that most are paying $10 or less a month for their SVOD service, it’s surprising that so many would give up something they obviously value so much to save so little!

First of all, $10 may be relatively little to some, but not to all. And if every streaming music and video service wants $10 from a consumer, something’s gotta give. Saving a few dollars on each subscription may enable a consumer to add another subscription or two to his a la carte approach.

Second, one doesn’t have to dig very deeply to find that pay-TV services are among the most reviled of any industry. Cord-cutters have already voted with their wallets, and if every network that produces content now decides to charge a monthly a la carte fee of around $10 a month, there will be losers. If ESPN is in trouble, then the pay-TV business is in trouble.

HBO may be able to get away with a $16 monthly streaming fee, and maybe ESPN could as well. But not many others would want to try their luck there. Even $10 a month could be deadly.