The Great Rebundling Will Be Ad-Supported

Author: Alan Wolk Source: TVREV

Verizon announced the latest milestone in The Great Rebundling this week, offering its mobile customers access to both Netflix and Max for just $10/month, a 40 percent savings. 

The catch—because there’s always a catch—is that the deal is only good on the ad-supported versions of both apps.

That said it’s still a significant savings and noteworthy in that while MVPDs have been the home of previous bundles, mobile carriers probably make more sense.

Unlike MVPDs, which are bound to specific geographies, mobile carriers are national in scope. There are also really only three of them in the US, so the user bases are much larger. Verizon has around 143 million subscribers, for example, while AT&T has 239 million. Granted those are individuals, rather than households, but they’re still huge numbers.

The other reason mobile carriers may make more sense is that they too will soon be able to bundle in broadband access via fixed 5G wireless to the home. Speeds are catching up to cable broadband and as the services roll out, more and more people will switch.

But what’s important to look at here isn’t how the service is being offered but rather, which service is being offered: the ad-supported one.

Why It Matters

Hulu, the OG ad-supported subscription service started out with 100 percent of its user base on the ad-supported model and went down from there as people actively chose to spend more money each month to avoid ads.

That’s a very different scenario than what Netflix and Max are asking users to do, which is to actively choose to spend a few less dollars each month in exchange for seeing ads.

That’s why both services have not yet seen a massive uptake on their ad-supported product and why they are amenable to bundling deals like the one Verizon is about to offer.

As I may have mentioned once or twice, I am convinced this is just a part of a greater push to get consumers to subscribe to the SVOD’s ad-supported tiers. And that one way they will do this is to create a much greater disparity between the cost of their ad-supported and ad-free services, with ad-free subscriptions hitting the $30 and possibly even $40 mark.

The push to bundling makes eminent sense in that the current landscape offers limited growth potential for ad-supported subscriptions. 

Let’s take the typical use case. A subscriber who has either never subscribed to Max or who has churned out of Max decided to sign up again to see Succession. This is key, in that these new “must see” shows seem to be key drivers of new subscriptions. 

Now that person can sign up to pay $10/month to watch all those episodes of Succession with ads. Or they can pay six more dollars each month to watch them without ads.

Sort of a no-brainer.

People watch TV in one of two ways: lean-in and lean-back. Lean-in shows are those they purposely set out to watch (versus “let me see what’s on tonight”) and which they then pay close attention to, limiting the phone usage, conversation, snacking and bathroom breaks for that hour. So given that scenario, six dollars is a fairly paltry price to pay for the ability to avoid ads during all ten episodes of Succession. Especially if the plan is to cancel their subscription once the show ends.

So there’s that, and it’s why ad-supported bundles make so much sense.

First off, the impetus there is not “I want so see this show” but rather “there will likely be shows on Netflix and Max that I want to watch over the course of the year, and for $10/month I can save myself the hassle of unsubscribing and re-subscribing, let alone having to enter a new username and password into every TV-related device in my home.” 

That scenario, which places a premium on cost savings, makes the viewer far more likely to choose the ad-supported version. It also means that Netflix and Max will be able to hold on to that subscriber indefinitely, thus staying ahead of the dreaded churn cycle.

For Verizon it’s a win too, as they can then offer said subscriber a discounted uber-bundle including mobile phone service and mobile broadband, all for one low price on a two-year plan. 

So a win all around.

What You Need To Do About It

If you are one of the other SVOD services, then you need to look at getting your own bundling deals in place. 

These can be with another subscription service (sort of what Paramount and Apple are looking to do) or solo (you’d need to bundle your service with something and/or give new subs a deal on a full year subscription.)

You probably want to stop offering deals on your ad-free versions too. You want to make those as financially unattractive as possible in order to grow your ad-supported base. 

I’m thinking that you want at least 60 percent to 70 percent of your users coming from your ad-supported tiers and none of you are anywhere close to that number.

Which is why you still need to make a major push on ad-supported and bundling deals can help. Just remember not to keep increasing the ad load because it will eventually catch up to you and consumers will go elsewhere.

If you are an MVPD, keep an eye on the mobile carriers. They have mobile service, fixed broadband and now they have streaming bundles. You need to figure out how you plan to fight back and what your world looks like when you’re finally facing some real competition.