eli5: Why is it cheaper to buy streaming subscriptions by the year?


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?

In: 0

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.

Economics. The longer they can “hook you”, the more lenient you’ll be if anything changes to their service (price, catalog, etc…)

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.