Streaming Bundles are Coming

This week saw two announcements of streaming bundles in the form of T-Mobile giving away Netflix’s service to its family plan subscribers, and Spotify adding the Hulu service to its US college student subscriptions. As streaming content services grow, we’re going to see more attempts to bundle them together both to grow subscriber numbers and increase the stickiness of existing memberships. But some of these bundles will be more natural fits than others, as data from a recent survey shows.

Bundles Will Become More Common

Both of the streaming bundles announced this week are technically giveaways by one provider of a service provided by another. T-Mobile is using free Netflix as a value-add for its family plan subscriptions, while Spotify is using Hulu as a great add-on for its student subs in the US. We don’t know the financial details of these arrangements, but it’s likely that T-Mobile is paying a slightly discounted rate for the $10/month subscriptions it’s subsidizing for its subscribers, while Spotify and Hulu are likely doing some kind of revenue share on their partnership.

In both cases, the partners have come together in recognition of the fact that customers will respond both to discounts and to consolidating multiple services on a single bill. That’s a strategy that’s long been applied by telcos and cable companies combining broadband, TV, and home phone services, and more recently adding wireless services into the mix as well. Numbers from cable operator Comcast show that under a third of its customers take just one service, while exactly a third took two services (most commonly broadband and TV) at the end of June, and over a third take three or more services from the company. Long experience with these bundles among these companies show that they compete more effectively against single product offerings and that churn is lower for each additional service taken by a subscriber.

Those lessons are now being applied to the streaming content market, with the same drivers presumably motivating the partnerships we’re starting to see. And I’ll bet we’ll see more of these. Some companies are already aggregating these subscriptions in more indirect ways, notably Apple through the App Store and its subscription model, and Amazon with its Subscribe with Amazon service. But we’re going to see more services partner directly with each other going forward.

Some Services Will be Better Matches and Drive More Growth Than Others

A few weeks ago, I shared some high level findings from recent surveys I’ve done on subscriptions to US streaming services. Today, I thought I’d share a slightly different set of data from that survey, which dives a little deeper on the cross-penetration between services. The table below summarizes the penetration of each of a handful of services within the base of subscribers to the others. In other words, the 50% shown near the top left means that 50% of Netflix subscribers also subscribe to Amazon Prime, while the 12% that appears near the bottom right means that 12% of Apple Music subscribers also subscribe to Spotify.

You’ll notice a very wide range of numbers across the board here, all the way from 10% Apple Music penetration among Spotify subscribers to 79% penetration of Hulu subscribers by Netflix. Some of these services are clearly more natural bedfellows than others. Importantly, subscribing to multiple video services – e.g. Netflix, Hulu, and Amazon Prime – is common, with penetration rising among those who already take one video service relative to the overall population, while taking multiple music services is far less common. That reflects the fact that video services are largely complementary, while music services tend to be very similar in the content they offer and mostly differ on additional features.

Of course, one of the partnerships we saw announced this week was between Spotify and Hulu, and in the version of the table below I’ve highlighted the cells that deal with the overlap between these services:

As you can see, cross-penetration between these services is relatively low, with 24% of Spotify subscribers taking Hulu, and 18% of Hulu subscribers also taking Spotify. It might be tempting to draw the conclusion from this that the services are a poor fit, but the critical context here is that both services have fairly low penetration among the overall population compared to much more popular services like Netflix and Amazon Prime. As such, the rates of cross penetration are actually a little higher than their penetration among the general population. And the other way to look at this is that there’s clearly an opportunity to raise both that cross penetration and the overall penetration among the population through bundles like the one these two companies announced this week. In fact, given the relatively low rates of cross-penetration combined with the complementarity of the services, this is arguably by far the best match among the companies in the survey.

Broader Potential for Bundling and Discounts

For now, that bundle is only available to college subscribers, and not to other users of either service. That allows the companies to make good inroads with an important target group of subscribers without exposing themselves to massive losses across the broader customer base, and I think it’s very unlikely that we’ll ever see Hulu thrown in for free with a standard Spotify subscription. But I wouldn’t be surprised if we see Hulu and Spotify bundled for a discounted rate, such as $12-15 per month instead of the $18 they’d cost if purchased separately. That would be very much in line with the cable and telco style bundling I mentioned earlier, and the companies could justify the discounts on the basis of the lower churn and customer acquisition costs they’d likely see from these subscribers.

Meanwhile, we’ll also continue to see bundling across industry sectors, of which this week’s T-Mobile-Netflix announcement is an example. AT&T already offers free HBO with some of its wireless plans, and as it completes its acquisition of Time Warner in the coming weeks it’s likely to do more of this sort of thing. Sprint has invested in music service Tidal and offers free access to Tidal for six months to its subscribers. Music bundles in particular have been very popular among mobile operators outside the US. For many streaming services faced with the prospect of expanding into new content areas – e.g. out of music and into video – the option to instead partner with a player in that market and achieve some of the same benefits will be very attractive.

As a counterpoint to all of this, there are those companies that already own services in multiple streaming content categories – Amazon and Google are perhaps the best examples today, offering both music and video subscription services, but Apple might well join the fray soon with its massive investment in original video content and the video service that will likely eventually house that content. And as I’ve already mentioned, both Apple and Amazon allow their users to bundle in third party subscriptions as well, making them powerful alternatives to these ad hoc bundles between individual services. Whether the individual services are compelling and whether there’s real benefit from integrating them will determine which of these players is ultimately successful.