With Verizon set to launch its Plus Play bundle of digital subscriptions later this year, Barclay’s Group media analyst Kannan Venkateshwar believes that depending on the structure, the growing trend of bundling streaming services to attract new subscribers could serve as a gateway to the industry’s true direction: an aggregation model similar to what Google did with search, Netflix did with TV networks and Spotify did with recorded music only a few years ago.
With streaming subscriber growth on the fritz over the past few quarters, investors and analysts are understandably paying close attention to how bundling could change the dynamic in the industry. While others have tried bundling services -- Disney has grouped its Disney Plus, Hulu and ESPN Plus streaming services in a $13.99 monthly package ($19.99 ad-free) with relatively strong success. what makes Verizon’s Plus Play different is its decision to pair video with sports news sites like The Athletic, fitness programming from Peloton, music, weight management via WW International and language services from Duolingo. Already other streamers like Discovery Plus, AMC Plus, Disney Plus, A+E Networks and others have signed up to Plus Play, with HBO Max agreeing in April to be available through the service.
There are Bundles, and Then There’s Bundling
“Bundles are more than the sum of its components,” Venkateshwar wrote, adding that consumers see bundles as separate products with a value all their own.
“In our opinion, the implications of this are not appreciated enough by media management teams because if they were, fragmentation of content in forms seen over the last few years would not have been enabled by media companies and distributors,” he wrote.
In that vein, the analyst said that more important will be how bundles are constructed, adding that the old way of simply offering fewer channels for a lower price won’t cut it anymore. In fact, he added that in many cases, smaller bundles could be worth more than their fatter counterparts.
“In our opinion, the nature of bundles as independent products also implies that a 20-channel bundle is not necessarily half as valuable as a 40-channel bundle,” Venkateshwar wrote. “In fact, the smaller bundle could even be perceived as being of more value than the bigger bundle, based on factors such as content mix, nature of experience, and convenience (e.g. full stacking, offline viewership, etc.)”
And he continued that if streamers follow that recipe, it could be bad news for traditional distributors.
“This is also why a bundled offering of streaming services could accelerate the pace of cord cutting in legacy pay TV bundles, especially if the streaming bundle is offered by an aggregator that eases content discovery,” he wrote.
While Verizon hasn’t yet mapped out what the Plus Play bundle will look like exactly, Venkateshwar predicted it would be a mixed price bundle, where the underlying services will be available individually but potentially more expensive on a retail basis, much like the Disney model for its Disney Plus-Hulu-ESPN Plus bundle. He expects HBO Max and Discovery Plus, which parent Warner Bros. Discovery has indicated will eventually be bundled together, to look the same at least initially.
Advertising Changes Everything
But Venkateshwar said the dynamic changes again once advertising is added to the streaming mix, especially around the ad-time allocated to distributors. Every major streamer has said it will offer an ad-supported version if they haven’t already, with Disney Plus and Netflix targeting year-end for their respective launches. So-called Free Ad-Supported Television (FAST) services like Tubi and Pluto TV have managed to attract a large swath of consumers -- they have 51 million and 68 million active monthly users, respectively -- another catalyst for other providers to join the fray.
According to Venkateshwar, while it is possible that streamers will offer distributors the standard 2 minutes of ad inventory each hour in addition to their affiliate fees, similar to linear bundles, some streamers like Hulu and Tubi share ad revenue with their content partners, which may have constraints. Other streamers with fixed cost agreements like Netflix and Disney Plus would have more flexibility and better margins on the advertising side, he wrote.
“Distributors in the streaming world are also likely to have a more integral role in ad measurement and delivery than in the legacy cable network world,” Venkateshwar wrote. “As a result, compared to the legacy cable bundle world where distributors got the arguably the worst spots (typically at the 26th and 56th minute every hour, when viewership typically dips), distributors may get more leverage in a streaming world.”
Aggregation is the Thing
While Venkateshwar believes that bundling streaming services is all well and good, the real value lies in aggregation. While Verizon will probably bundle streaming video, Peloton, music and gaming under one low, low price, the real driver of value is its wireless service. According to Venkateshwar’s thinking, bundling is more about convenience and adding value to another core service, while aggregation is about the core offering and driving more engagement.
In that scenario, for example, Amazon could embed its Amazon Fire Operating System into TV brands and bundle streaming services with Amazon Prime, giving consumers the benefit of lower pricing, enhanced content discovery and a potential link to the online shopping service. Google could do the same with Android TV and Apple with Apple TV Plus.
That could be a scary scenario for cable networks, because the best aggregators make underlying applications irrelevant, like Google did with Yahoo, Spotify did with record albums and Netflix did with TV networks, the analyst wrote.
“... now Android TV and other [operating systems] may make Netflix less relevant as a standalone brand,” Venkateshwar wrote, adding that this will force streaming services to work harder to establish their brands. While Disney appears to be the leader on that front, the impact of other brands like Peacock, Pluto TV, Tubi or even Apple TV Plus is less clear.
While it seems like only the huge tech players will come out on top of the aggregator heap, the analyst was somewhat encouraged by Comcast’s mix of assets -- broadband-only service Flex, Peacock, a scaled ad team, strong content base and distribution scale. But he worried that the slow pace of its Flex product rollout in its own footprint could indicate it’s not quite ready to match up with the tech giants.
“Overall, while bundling is easy to do, it is quite anachronistic given content distribution technologies today,” Venkateshwar wrote. “We believe the real value of bundling will be realized by aggregation, which is still in its very early phases. As this model evolves, content discovery for TV shows may not be very different than, say, Google search, even if the process is more passive for consumers.” ■
