The Great Rebundling Is About To Happen
Author: Alan Wolk. Source: Forbes
Meet the new TV ecosystem.
It’s going to look a lot more like the old one than many people realize.
As in you will likely be paying for bundles of programming, only the bulk of the programming will be coming from the eight multibillion dollar Flixes (Netflix, Hulu, Amazon, Disney+, Apple TV+, Peacock, HBO Max and VCBS-Flix) rather than from hundreds of cable channels.
Why This Is Happening Now
2020 will be a year of massive change for the TV industry. All eight Flixes should be up and running, and between them they will be spending more than $20 billion on original programming .Not to mention all the millions they’ll be spending on marketing those shows.
So viewers will naturally want to subscribe, especially since many of them make it so easy: subscribe to a Verizon unlimited plan and get a year of Disney+ for free. Buy any Apple product and get a year of Apple TV+ for free. Even if you’re paying out of pocket, the cost of many of the Flixes is still well under $10/month, especially if you’re getting the ad supported version.
Since all eight services offer month-to-month contracts, which makes putting a subscription on pause very, very easy, there is likely to be a great deal of churn—viewers subscribing and unsubscribing to services in order to keep their TV bills in check.
This is a concern to the Flixes for several reasons:
Advertising: Four of the Flixes (Hulu, Peacock, HBO Max and VCBS-Flix) will offer some form of ad-supported subscription. In order to get advertisers to pay top dollar, they will need to be able to guarantee them a certain sized audience. If their audience size varies wildly from month to month due to churn, it’s hard for them to make any guarantees. Even the Flixes that don’t sell ads sell things like product placement, and the amount of revenue they can get for that will depend on audience size too.
Prestige: In addition to bragging rights at Hollywood parties, the size of each service’s audience is going to play a huge part in convincing big name actors, directors and showrunners to sign up, which will in turn help them obtain and retain even more subscribers.
Overseas Carriage Deals: While Netflix may be in every country except China, North Korea and Syria, the other seven Flixes are all looking to expand their presence overseas. The ability to point to a large and stable audience in the U.S. will help convince potential partners that they are the Flix to go with.
Investors: The Flixes are all owned by public companies and investors are not going to be happy if the number of subscribers seems to rise and fall drastically.
So then how to stop all this churn? The answer is one the TV industry has relied on for the last forty years: the bundle. By offering viewers a discount for taking a bundled group of program offerings, distributors can increase stability and potentially save consumers some money
The Likely Rebundlers
This time, The Great Rebundling is like to take place in three ways:
1. The Flixes Themselves: CBS All Access already offers subscribers a 15% discount if they sign up for a year. All of the various Flixes are likely to offer similar deals (15% or 20% off if you sign up for a year or two) —it’s an easy sell, requires less work for both parties (no monthly bill to send out, collect and track) and helps solidify the audience. (Disney, which owns Hulu and Disney+ has already started offering a monthly bundle of those two services plus ESPN+. It’s not difficult to imagine them turning that into a yearly offer.)
2. The Various Streaming Devices: Apple, Amazon and Roku are already selling individual subscriptions to the various Flixes, for which they get a cut of the subscription fee. (Generally assumed to be 30%.)
So it’s not much of a stretch to see them offering several services bundled together as a way of increasing consumer loyalty. Thus, for example, Roku could sell a device for $99 that came bundled with a one year subscription to five of the eight Flixes. Or simply offer a yearlong bundle to their current users for a price 20% lower than the price of a monthly subscription.
They’d need to get the various Flixes to agree to this—they are likely to initially resist any plans that group them together, but the lure of having the device OEMs sell subscriptions to their vast subscriber bases (Roku and Amazon both have around 40 million registered users for their devices and Amazon could also offer the deal to all of their 112 million plus Prime subscribers) will be a strong one, and once churn starts to happen in earnest, the Flixes should come around.
The financials on these deals will be interesting: will the device manufacturers still be able to get 30% commission on every subscription and will they also begin asking for ad space the way that MVPDs do—two minutes out of every hour? Both Roku and Amazon have thriving ad businesses and smart TV OEMs like Samsung, VIZIO and LG could also get into this game as well. (VIZIO, for example, just launched its own TV ad sales unit.)
The advantage for consumers in this scenario will be that they have a single bill to pay each month, an easy way to manage their subscriptions, as well as a single interface that may offer something like a unified program guide. And, if and when they get tired of the Flixes, they’ll also have the FASTS—free ad-supported streaming TV services like Tubi and The Roku Channel that offer a wide range of programming choices with considerably lower ad loads than traditional cable TV.
3. The MVPDs: Selling broadband is now far more profitable for MVPDs than selling pay TV subscriptions, and the reality is most don’t care what sort of TV service they offer, just so long as it keeps their subscribers locked in place. This is especially true with 5G lurking on the horizon, as many MVPDs will face real competition for broadband subscribers for the first time ever.
So it would not be surprising if the MVPDs start offering bundles of the various Flixes too, in much the same way they have bundled HBO, Showtime and other premium cable channels together and used them as come-ons for new subscribers.
If there’s a red flag for the MVPDs, it’s that they could potentially be undermining their traditional pay TV partners, but given that four of the Flixes (Hulu, Disney+, Peacock and VCBS-Flix) are owned by those partners, it’s likely some sort of accommodation can be reached.
One possible option is that the Flix bundle includes a “Super Skinny” bundle of the major broadcast channels, with 24-hour news, regional sports networks and non-fiction/reality channels as additional cost bolt-ons.
Super Skinny bundles make sense, because if anyone is at risk in this new world, it is smaller, less popular cable networks, especially once viewers realize how much they’re paying for cable versus how infrequently they’re watching it.
Given that, it’s in the MVPDs interests to offer a seriously slimmed down version of the current bundle as a way of keeping customers in the fold while still offering them a better broadband + pay TV package than they could get on their own.
Whatever money the MVPDs may be giving up can be made back by raising the amount they charge for broadband—it’s an easy argument that someone who has just added three new streaming services needs to upgrade their broadband speed from 25mbps to 250mbps, all for a special price of just $19.99 extra per month. (Of which, $19.75 is likely pure profit.)
What’s Next
While the death of TV has been the subject of much speculation over the years, the actual denouement is likely to look more like a shuffling of the deck chairs, with the same key players creating most of the programming for the new ecosystem, joined by a few new (digital) faces.
The good news is that consumers will likely come out ahead, with better, higher-quality programming options, easier to navigate interfaces, access to massive on-demand libraries and fewer filler channels they pay for, but rarely watch.
The king is dead. Long live the king.