For example, I just renewed by subscription to Crave, which is basically the Canadian HBO Max. I could buy it for $20 a month or $200 for the year. I did the year, saving myself about $40. Why do services do this?
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Economics. The longer they can “hook you”, the more lenient you’ll be if anything changes to their service (price, catalog, etc…)
A lot of people sign up for a streaming service for a single month, watch what they want, and then cancel it. So, in your example, Crave would only get $20 from that customer.
But, if they convince you to sign up for the entire year, they have gotten $200 from you, regardless of if you finished watching all of the content that you’re interested in.
The basic concept is that businesses are willing to give a discount for guaranteed money to prevent the chance that you might cancel early.
Guarantee of more money compared to you buying a month watching your favourite show and cancelling
Because having less money now is more valuable to them than having a little more money in the future. There are a few things that cause this.
First, as a rule in life, a fixed amount of money is worth more now than in the future due to inflation.
Second, if they have money now, they can reinvest it. For streaming services this can mean licensing new content or doing marketing campaigns to increase their subscriber count, leading to more money in the future than you paying a slightly higher subscription fee.
Both of those factors are part of an economic concept called the “time value of money” if you want to learn more.
Because it only costs them $5 a month to provide the service, and their analysts tell them not everyone who subscribes month-to-month stays for the whole year. They’d rather make a guaranteed $140, than take the risk that you’ll unsubscribe after 3 months and only net them $45.
if you buy it by the month, you can quit after a few months, so they will make a lot less than $200.
If you pay $200, you essentially locked yourself into at least 10 months of subscription.
It’s revenue certainty which is important for a business, it costs the same to entice a customer for a month or year, seeing fewer charges on bills create more inertia to keep subscribing (each time charged is a time to evaluate whether it’s worth keeping the subscription)
The actual cost of providing the service is half or less your price. Most of these are auto-renew so, the likelihood of you remembering to cancel a year from now vs. cancelling next month is quite low.
There’s also swipe fees / swipe charges / interchange fees / whichever label you want to use. Those start as a percentage of the transaction but reach an upper limit, which means when the yearly subscription cost is broken down to 12 individual months then there is added hassle on the behind-the-scenes to handle 12 times as many payments per year and so on and so forth.
It’s kind of like buying in bulk too. The more you buy (a years worth up front) the bigger the discount you get. Also with time value of money, it’s better for them to have money now than to wait to get it.
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