Streaming bundles have been all the rage as of late in the media and entertainment industry.
Just take the recent bundling deal for Walt Disney‘s Disney+ and Hulu with Warner Bros. Discovery (WBD)’s Max as an example. Or the bundle of Peacock, Netflix and Apple TV+ unveiled by Comcast. Or the upcoming sports-focused streaming service from Disney, WBD and Fox Corp., Venu Sports.
The hope behind bundles is to offer consumers stickier streaming products that can also provide a price discount.
Andrew Georgiou, president and managing director of WBD U.K. & Ireland and WBD Sports Europe, told Deloitte’s Media & Telecoms 2024 and Beyond Conference in London last week that streaming bundles better serve consumers while allowing companies to reduce expensive customer churn rates. “That phenomenon in the U.K. and other markets is a huge cost of business, and reducing that churn, increasing engagement and reducing the cost of win-back is something that we all need,” he said.
The Hollywood Reporter talked to Paul Lee, partner, global head of research, technology, media & telecommunications at advisory and consulting firm Deloitte U.K., about the benefits and challenges of streaming bundles and the state of streaming subscriber churn at a time when entertainment giants continue to push towards profitability in their streaming businesses.
How do you view the recent focus of Hollywood giants to ensure they make their streaming businesses profitable? And what is the key to getting there?
You had this golden period where there was lots of accumulation of subscribers and also of content and ultra-low interest rates, and you had constant growth until about 2021. At that point, you hit a plateau and also had the realization that not everyone can make money in streaming. Also what you had was growing churn. So that just made it clear that the current model was unsustainable. And what we expect to happen is consolidation in markets, but that will be happening in different ways.
So probably what will happen is that some of the players that work in direct-to-consumer markets will start kind of replicating old-fashioned pay-TV. That could be a mobile phone or pay-TV company that will trade a lack of churn for a lower average revenue per user (ARPU).
In the U.K., about 30 percent of all the subscriptions for even some of the big players are sold via a third party, which is really very high. And for some of the smaller providers, over 50 percent of their sales are via a third party. So you are moving back to that pay-TV model.
What we also see happening is that some bundles are emerging, which again feels like pay-TV. You can buy these individually, and you’ll pay A plus B plus C. But if you buy three services in a bundle, they’ll just cost you A plus B. So you’ll get a discount. And you move back into the larger bundle in exchange for a discount or in exchange for a fixed period in which you’re subscribed.
How do companies figure out the financials in such streaming bundles? Who takes or accepts the subscriber price discount, or is that shared?
Those are significant, difficult discussions. But you can see some of the bundles emerging in the U.S. market because you have so many players there. And also, you don’t have public service broadcasters like in the U.K. and elsewhere.
But you will need to have those negotiations on who gets what, and it will come down to how many hours are watched a week on each service. In the U.S., you’ve got Nielsen doing measurements, which makes the understanding of who’s most valuable easier.
In the U.K., you’ve got three dominant players. You’ve got Netflix, you’ve got Disney+, and you’ve got Amazon Prime. And I think that’s the order in terms of hours consumed. So that will be an input in discussions. And then I would also look at the frequency of viewing.
I would expect over the next year that what you’re going to be seeing will be more of his bundling of existing packages.
How do bundles look for the consumer and is there any best-practices approach developing? And do any of the streaming services lose their direct-to-consumer shopping window, so to speak, as a result?
You are going to have a single search bar with an EPG (electronic program guide). And if you are a p2p provider, then you have your existing EPG. And you have a simple search bar. And each viewer’s search bar will link to whatever content they have access to. That’s how that would work.
There are some big aggregators out there already. Amazon is getting content, because that’s its legacy. So is Apple, because they had iTunes way before streaming became available. And Apple has a storefront and its user interface and that could also provide access to content. There’ll be discussions of problems, but I expect them to be guarded by pragmatism.
How much evidence do we have already that bundling will help with user churn?
You’ve got a material cost of acquisition in streaming. In the U.S., what’s been talked about is that is $100, but you may have a service that is $100 per year. So churn is really, really corrosive.
The trade-off will be, if you have a bundle of three, you get a discount, but you also have a fixed contract. For example, let’s say you have a telco being the aggregator, and the telco does two-year contracts – when your two-year contract will also give you three SVOD services for the price of two. So you are part of a two-year contract. With a lot of SVOD services, you have a month. But if you’re part of this contract, it will be two years.
So the benefit for the consumer will be having a discount and also one bill. You don’t have to worry about not paying the bill. And also, you could say we will guarantee you against any price increases [by the streamers]. So you’ve got benefits as the consumer.
Does bundling mean there will be less focus on and less pressure to look for consolidation, meaning mergers of streamers, which was a big topic in the past?
There is discussion around M&A in the U.S. market. But when you got pressures, you get M&A. You always get M&A either when people are growing or when they are contracting.
Is there any risk to bundling or anything about it that people are underestimating?
The big risk with bundling is if you introduce complexity. The important thing when you want to bundle is to make the user experience easy. When people turn on their TV, they want to start watching TV as soon as possible. When it’s really hard work to find programs and it’s multiple clicks to get what you want, it can be excruciating. Never lose sight of that.
Because if you introduce friction, consumers will turn off and they will value a product less. At the moment, that’s what I find to be the case with a lot of services. There is a lot of friction. You can have apps that make life easier. But you can also have apps which make life harder. So an app alone is not the solution. It is the execution and the caliber of the app.
In the past, you might have had only 20 channels, but you had a much easier user experience. You didn’t have latency. But now we have tremendous latency, even with a good quality sort of television when switching, say, from the Disney app to the Netflix app. It will be a few seconds to make that move.
