Deeper Dive—Verizon and Apple devalue the traditional video bundle

TV watching
If Apple, Disney, Verizon, ViacomCBS and others continue to work together on non-traditional bundles, it could draw more subscribers away from the traditional pay TV ecosystem and force more distributors to get creative. (Pinho/Unsplash)

Both Apple and Verizon this week ushered in new subscription bundles that further call into question the price-to-value ratio of traditional MVPD services.

Verizon deepened its relationship with Disney in what amounts to a logical extension of what both companies were already doing with video. Verizon has been throwing in a free year of Disney+ for some of its wireless and broadband subscribers and, earlier this year, it rolled out new “Mix & Match” pricing schemes that de-emphasized its own video products in favor of third-party services.

Before Disney officially launched Disney+ in November last year, the company said that it would sell the service bundled together with ESPN+ and Hulu at a reduced price.

Now, Verizon has introduced new unlimited wireless plans that include the entire Disney streaming bundle. The plans run between $45 and $55 per line per month and provide ongoing access (not a limited time offer) to the Disney services.

At the same time, Apple rolled out a new reduced-price bundle for its Apple TV+ subscribers, allowing them to get both CBS All Access (commercial-free) and Showtime for $9.99 – a more than 50% discount on their combined cost. A report from Bloomberg suggests that Apple TV+ will likely introduce more service bundles to help offset its lack of licensed content.

Lightshed analyst Rich Greenfield believes that what Apple, Disney, Verizon and ViacomCBS did this week spells trouble for AT&T, Comcast and other traditional video distributors.

“While Viacom and Disney are taking an ARPU hit on these discounted offers, bundling meaningfully lowers churn, which is a clear net positive for their SVOD subscriber numbers,” wrote Greenfield in a research note. “For the consumer, they are getting ever more content at lower and lower prices. The bad news for legacy media is greater uptake of SVOD, especially SVOD with little-to-no advertising, which shifts time spent away from linear TV even faster – pressuring TV advertising and accelerating cord-cutting.”

Traditional MVPDs have been acknowledging the cord-cutting trend for years now and have accordingly placed more emphasis on their connectivity businesses. Frank Boulben, senior vice president of marketing and products at Verizon, painted an especially bleak for the future of the old-fashioned channel bundle.

“The current value chain of the media business is not working. It’s broken,” he told CNBC. “Content has a key role to play, but very different from what it used to be when we were more of a traditional [multichannel video programming distributor]. I don’t think we will ever go back to the old bundle approach.”

According to Leichtman Research Group, largest pay TV providers in the U.S. – representing about 95% of the market – lost about 1,570,000 net video subscribers during the second quarter. Bruce Leichtman, president and principal analyst for Leichtman, said that even though the losses were about half a million fewer than the first quarter, it was still the sixth consecutive quarter with total pay TV subscriber losses exceeding one million.

“The pay TV industry as a whole continues to rapidly lose subscribers. However, the wide disparity in performance among top providers in the quarter demonstrates the significance of individual corporate strategies,” said Leichtman in a statement.

Barclays last year predicted that with more streaming services like Quibi, HBO Max and Peacock hitting the market, the industry will see a mix of price and product bundles from ISPs which include multiple OTT services attached to a broadband connection at one price point.

“In our opinion, however, ISPs that can create product bundles will be a lot more effective than those creating price bundles but the only company which has invested in this among ISPs is Comcast,” wrote Barclays analyst Kannan Venkateshwar in a research note.

If Apple, Disney, Verizon, ViacomCBS and others continue to work together on non-traditional bundles, it could draw more subscribers away from the traditional pay TV ecosystem and force more distributors to get creative.

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