Industry Voices—Groch: The Disney+ bundle forces streamers to weigh cost vs. customization

Disney Plus
Disney is rolling out a $13 bundle for Disney+, ESPN+ and Hulu. (Disney)

Social media conversation exploded this week when Disney announced its $12.99/month bundle of Disney+, ESPN+ and Hulu with ads. Many consumers expressed excitement at the low price point, while others balked at the idea of having to pay for sports. Still others complained that they don’t want Hulu with ads. The varying reactions to the Disney+ streaming bundle help illustrate two of the key drivers of cord cutting: saving money and subscribing only to the content you want to watch. Disney is hoping that its low price point for bundling the three streaming services will offer enough value to attract broad audiences and keep them around.

What do consumers want?

Consumers have been leaving legacy pay TV services in large part because they don’t want to pay for bloated packages that include hundreds of channels they don’t watch. Mintel’s upcoming Pay TV and Bundled Communications Services report finds that 77% of consumers who pay for TV say they don’t watch most of the channels they pay for. Additionally, a study commissioned by Amdocs in late 2018 found 69% of U.S. viewers agreed they would be happy to ditch their current video providers if a personalized content package bundling all of their preferred content were available. Consumers want to be able to trim out the content they don’t watch, thereby maximizing value.

As such, consumers are quick to notice when content they don’t want gets tossed into a bundle, as we’ve observed in many social media comments regarding the Disney+ bundle. Those consumers who don’t want ESPN+ or the ad-supported tier of Hulu were quick to note that this bundle wouldn’t be a good value to them. Unfortunately, Disney hasn’t announced any customizable options for its bundle, which might appease consumers responding like this:

As important as customization has become for consumers, however, price is the top motivator for cutting the cord. Mintel found that 48% of pay TV subscribers (both MVPDs and virtual MVPDs included) said they are considering cutting their pay TV service to save money. When you add it up, $12.99 per month for the bundle is approximately $5 in savings over purchasing each separately, which is a nice discount for consumers who are interested in all three. Plenty of consumers expressed their excitement over the price of the Disney+ bundle:

Why a bundle, and why this one?

Bundles help keep customers from churning in and out of services, a common problem in the streaming video space. High churn will likely grow with the new competition from Disney, Apple, AT&T and NBCU services entering the market in the coming months. After all, why would cost-conscious, customization-hungry consumers subscribe to all these services at once when they can swap them out from month to month, based on what they want to watch? A bundled deal— particularly one that grandfathers subscribers into a low rate that they’ll lose if they leave—discourages subscribers from leaving (and yes, the Disney+ bundle price will almost certainly increase in the future, opening opportunity to offer loyal customers grandfathered pricing).

Bundles can also boost viewership for included niche or targeted services. I’m not suggesting ESPN+ is niche (it already has 2.4 million subscribers), but there are plenty of consumers who just don’t want to watch sports. By locking them into the bundle, Disney boosts ESPN+ subscriber numbers, while also making that content available to consumers who might not otherwise engage.

Additionally, Hulu with ads was a very deliberate choice. It is unlikely Disney will offer a bundled option that includes ad-free Hulu. Here’s why. First, Hulu with ads is its most popular Hulu streaming tier and also the least expensive one. Second, and more importantly, Hulu wants to make its ads more valuable for advertisers by driving more eyeballs to the ad-supported version. This increases the cost of those ads, driving up Hulu’s ad revenue. Third, the bundle may attract new subscribers to Hulu, who get hooked and ultimately decide to upgrade to Hulu’s ad-free tier (even though they’d lose their bundle discount if they wanted to do this).

Is the Disney+ bundle a “Netflix killer”?

While there are plenty of consumers jumping on the “Netflix killer” bandwagon as more Disney+ details emerge, this response ignores Netflix’s many fans, and assumes that the streaming giant will simply stand still while the marketplace changes. Let’s see how Netflix responds. Announcements like the Disney+ bundle likely mean Netflix explores some new options that will be advantageous for consumers. Maybe it looks into partnerships for its own content bundle, or starts offering a loyalty program for customers, or delves deeper into gaming or other services that can enrich experiences for fans of its popular content. Regardless, consumers should be excited about the competition ahead.

Emily Groch is Comperemedia’s Director of Insights, Telecommunications. She pairs her deep knowledge of marketing within the telecommunications industry with Mintel’s consumer research, trends, and competitive marketing intelligence to build timely, meaningful stories for Mintel and Comperemedia telecom clients. Emily travels throughout the US and Canada to present industry marketing trends and insights to major TV, Internet, and wireless service providers, and their advertising agencies.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceVideo staff. They do not represent the opinions of FierceVideo.