The OTT Premiere Season Is Upon Us
Apple and Disney officially enter the streaming arena, with AT&T and Comcast in the wings, and bundling is back in vogue
We tend to think of the era of Peak TV as something that has already happened, that there are already too many good shows to ever catch up on. But with Apple TV+ launching on Friday and Disney+ rolling out on November 12, not to mention HBO Max and Comcast’s Peacock coming next spring, it is clear we are only entering a new phase of Peak Streaming.
For decades, the TV premiere season used to take place in mid-to-late September to accommodate the rhythms of broadcast TV business, but that is no longer the case. Welcome to the first ever premiere season of the streaming era, where high-profile new originals from Apple and Disney, plus hotly anticipated returning shows from competitors Netflix (The Crown) and Amazon Prime (Jack Ryan), are being unleashed over the course of the following three weeks to compete for the viewer’s increasingly scattered attention. The so-called streaming war has officially escalated to a new level, just in time for the upcoming holiday season, and for many contenders, a land grab via extended free trials or bundled access seems to be a popular strategy to ensure a successful launch.
SVOD Service as a Bundle Driver
In the age of abundance where consumers have easy access to everything, owning distribution is far less important than being able to generate demand. To stand out from competitors, generating positive word-of-mouth is crucial, and that requires an initial audience base to build on. Take the unlikely success of stalker thriller You for example. While the show was largely ignored when it first premiered on Lifetime, it quickly gained traction once it started streaming on Netflix where it was able to find an audience. Having a built-in subscriber base is a prerequisite to generating demand driven by word of mouth, hence the extended free trials and access as part of a larger bundle.
When Apple announced last month that Apple TV+ will be free for a year for anyone who buys a qualifying new Apple product, some analysts were quick to dismiss it as a symptom of Apple being insecure of its limited content library at launch and therefore want to artificially boost its initial user base to get people to sample its shows. However, as we noted in our recap of the iPhone 11 launch event, services like Apple TV+ and Apple Arcade exist not necessarily as a profit driver so much as a customer retention tool for the whole Apple ecosystem. Apple TV+, in particular, is clearly positioned to drive Apple customers to use the Apple TV app and consolidate their subscriptions there so that Apple can take a cut of subscription revenue generated by other streaming options. In other words, Apple TV+ is lead generation for Apple TV app that enables Apple take control of the customer relationship with video content providers and become deeply entrenched in the content value chain.
Doubling down on this strategy, Apple also announced that it will include Apple TV+ for free for Apple Music subscribers who are on the $4.99 student plan, which is a tried-and-true approach to lock in a coveted young demographic that it can upsell later. While the early reviews of Apple’s initial batch of original content are decidedly mediocre (although the average review score for Apple’s first four originals isn’t that far removed from Netflix’s inaugural series), granting millions of Apple users free access, combined with the megawatt star power of the leading talent involved, practically ensures a buzzy launch of Apple TV+.
Fast forward a month, it seems like just about every new entrant in the streaming war has decided to follow Apple’s example and offer free access to streaming services as a part of a larger subscription. This is especially the case with major telecom companies who are all eager to leverage free access to streaming services as a valuable add-on to compete. Granted, T-Mobile has been offering free Netflix as part of its unlimited plans for subscribers with two or more lines since 2017, but Apple’s bold decision to give away Apple TV+ for a year is what triggered this round of bundling frenzy.
Ironically, this calls to mind the industry dynamics of cable TV, where media companies spent billions of dollars to produce or buy high-quality content, then rely on companies with direct customer relationships for distribution. Only this time around, more telecom players actually own a media company, thanks to the past few years of media consolidation. As a result, bundling a streaming service and using content as a customer acquisition and retention tool to drive ecosystem lock-in is now a popular strategy. Let’s look at the bundle offerings from the top three U.S. telecom companies one by one.
Verizon’s Ad Hoc Bundle with Disney+
Verizon announced last week that it giving away Disney+ for free for one year to all of its wireless customers on unlimited data plans and to FiOS and 5G home internet customers, therefore ensuring that, like Apple, Disney+ will secure millions of users at launch. An interesting aspect of Verizon’s offer is that Verizon currently includes Apple Music as part of some of its Unlimited plans. Adding Disney+ to the mix inadvertently makes Verizon’s unlimited plans a super bundle of sorts, which makes sense strategically for Verizon, as it doesn’t have the kind of content ownership that its main competitors AT&T and Comcast have. Moving forward, Verizon is well positioned to remain a free-agent bundler that group together media services from different companies to add value to their wireless and broadband plans.
For Disney, this deal with Verizon secures a largely built-in audience for Disney+, which will officially launch on November 12 in the U.S., Canada and the Netherlands before rolling out to Australia and New Zealand a week later on Nov. 19. In addition to Disney’s deep vault of beloved content featuring some of the most valuable IP worldwide, a handful of new series and movies will also be available at launch, including the heavily promoted The Mandalorian. Reportedly, the first episode of the series contains a dramatic Star Wars-universe spoiler, which is almost guaranteed to likely trigger a pop culture conversation and force people that wish to avoid the spoiler to sign up for Disney+ so they can watch the show immediately.
Of course, this is not the only bundle that Disney has to sell, since it has already launched a promotional combo deal that combines DIsney+, Hulu, and ESPN+ for $13 a month. Disney’s corporate strategy is to leverage premium IP to drive monetization across an ecosystem of media, consumer products, and offline experiences, including theme parks and travel products. This means that over time, Disney+ is likely to become a super bundle for all of Disney’s digital content, including comics subscriptions and eBooks, as well as buying Disney consumer products and gaining VIP access to offline experiences, all personally tailored to suit each subsriber’s preferences and favorite characters based on the user data Disney+ directly collects.
When that bundle comes to be, this Verizon partnership will become far less important to Disney. Fortunately for Verizon, however, by the time that comes to be, there will likely be other streaming services in the market (such as the inevitable one planned by ViacomCBS) that it could bundle into its subscription. That being said, Disney’s premium content makes Disney+ a bigger draw than most streaming services, so it may very well be in Verizon’s best interest to keep Disney+ as part of the deal, especially considering that AT&T, its biggest competitor, now owns WarnerMedia and its subsidiary HBO, the only media company with a premium content backlog as venerable as Disney. Therefore, an alliance with Disney is Verizon’s best bet to stay as competitive as its archrival in terms of content bundles.
AT&T’s Bundle Led by HBO Max
At an investor and press event on Tuesday, AT&T finally unveiled some details of the upcoming HBO Max service, which will offer HBO’s premium content with a larger TV and film catalog from WarnerMedia for $15 per month. While this puts HBO at the top of the price range amongst the upcoming OTT offerings, with Disney+ priced at $7 per month and Apple TV+ at $5, it is still pretty aggressive pricing, considering that the standalone HBO Now also currently goes for $15 per month.
HBO is a pioneer in the direct-to-consumer model in the TV industry, and over the past few decades, it has largely relied on pay TV providers like Comcast and Charter as distributors. While that distribution network has historically provided HBO with significant go-to-market advantages, its entrenched interests with the cable companies has become more of a hurdle that is blocking HBO Max from going for a more competitive price. If HBO Max is priced lower than the existing HBO price tag, then WarnerMedia would have to forgo huge amounts of existing revenue from HBO’s current distributors, thanks to the existing contracts HBO has with the MVPDs. Interestingly, this is also why the company can’t simply rebrand HBO Now (HBO’s existing direct-to-consumer streaming service) and HBO Go (the HBO streaming service for authenticated cable TV subscribers) as HBO Max and move everyone over to clean up its confusing lineup of streaming service.
Of course, the high price tag doesn’t mean HBO Max won’t be competitive. Following Apple and Verizon’s announcements, AT&T also announced HBO Max will be available for free to the 10 million AT&T customers who are also HBO subscribers, which would also include existing subscribers of DirecTV and AT&T TV Now. In addition, subscribers to HBO Now who signed up directly via HBO will also receive a free upgrade to HBO Max when it launches. According to AT&T COO John Stankey, the telco might also include HBO Max for free with certain AT&T wireless plans, mirroring what Verizon is doing with Disney+.
Compared to Verizon, however, AT&T has a larger bundle that it could sell. The company reportedly has plans to integrate other WarnerMedia video services, such as Crunchyroll and the rumored Turner Sports and CNN subscriptions, into the flagship HBO Max service. It could also add third-party subscriptions such as Showtime and Starz into the mix. After all, many of these services are already offered at discounts when bundled with AT&T’s core telecom products, so why not build a whole bundle out of it? It could even consider repositioning DirecTV Now as live TV add-on to upsell HBO Max subscribers. Moreover, considering AT&T also has plans to a cheaper ad-supported tier of HBO Max in 2021, the company could also leverage its media bundle to generate data and ad opportunities for its advertising arm Xandr. If they play their cards right, these assets could create a formidable media ecosystem led by HBO Max that would transform AT&T’s core business from a “dumb pipe” telecom company into a media giant.
That being said, one big uncertainty still remains with AT&T’s plan to supersize HBO and making it a lead-generator for its media bundle. Historically, HBO has built a very strong brand with highly differentiated, adult-oriented premium content that truly drives the cultural conversation. Its business model didn’t require it to reach the largest audience, just the most valuable one. In contrast, as a bundle driver, HBO Max will have to aspire to mass appeal, mandated by the economics of scale. As a result, WarnerMedia’s content, much of which was developed for broadcast TV and naturally geared towards a mass audience, will have to exist alongside with HBO’s prestige content. Moving forward, AT&T faces a real test in balancing quantity with quality, i.e. increasing the content output of HBO Max without diluting HBO’s premium branding that justifies its high price tag in the first place.
Early Speculations about Comcast’s Peacock
Not to be left out of the conversation, Comcast, another major ISP in the U.S., also revealed this week it plans to bundle NBCUniversal’s upcoming SVOD service Peacock into its streaming platform Xfinity Flex for free. Set to be released in April, Peacock will debut with a slate of original programming along with popular NBCUniversal titles such as Parks and Recreation and The Office, the latter of which was estimated to be one of the most popular shows on Netflix. (Although it is debatable how much a comfort-food, background show like that really drives audience interests to sign up.) Comparatively speaking, Peacock has overall a weaker content library than Disney+ and HBO Max, so relying on Comcast’s distribution power is certainly the right bet, but it likely won’t add much to Comcast’s customer acquisition. That being said, giving away Peacock for free to all Comcast broadband subscribers would be an effective short-term promotion that could grant an estimated 25 million U.S. households access at launch.
One interesting aspect about Peacock is that it will likely be only new product in the streaming wars that is going to be 100% ad-supported. There will reportedly be two tiers at launch: a free tier for Comcast cable subscribers that will be supported by ads, and a paid subscription that still include ads for consumers without cable. Although Comcast has yet to announce the pricing for Peacock, one could assume that it would be much lower than its ad-free competitors, thus making it an easier sell as a standalone, especially when the cost of all the SVOD subscriptions quickly adds up as the landscape continues to fragment.
(Update 11/01/2019: the latest reports say NBC is leaning towards launching Peacock as an ad-supported free service, but with an ad-free paid tier.)
Of course, Peacock won’t be the only ad-supported streaming option. With free services CBS’s Pluto TV, Amazon’s IMDb TV, and Roku’s supported channel named The Roku Channel, all grabbing audience attention, it will be interesting to see how Peacock can justify its plan to get people who are not Comcast customers to pay for an ad-supported service.
With more streaming services launching and offering consumers more content options, cord-cutting will continue to accelerate, thus freeing a significant portion of the entertainment budget as audience switch to streaming. So perhaps people will end up subscribing to more streaming services than most analysts predicts, especially when all the popular content gets scattered among various disparate services.
Still, audience attention is finite, and the TV monoculture is already dead. Although video content remains a highly differentiated category, having too much to watch — which we now definitely have — renders it less of a deciding factor in choosing a service if you can’t even finish the content that’s already queued up or paid for. Judging by the way things are shaking out, we are all going to get one or two streaming services for free courtesy of our mobile or broadband subscription — or in the case of Apple, a new hardware purchase. Given that, plus the fact that half of U.S. households now subscribe to Netflix, content from the services that people will already have free access to would likely be prioritized over the ones that they don’t, which means there won’t be much attention left for the other non-budle players in the streaming war. In other words, it is time to bundle up.
