There is inevitably a shift towards OTT bundling coming, but what will be the catalyst?

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Outline of Newsletter #217

In this week’s PARQOR mailing, I had a few realizations about Channels and bundling models in OTT streaming after listening to this compelling, must-watch/listen conversation on the Variety Strictly Business podcast between Andrew Wallenstein and Starz CEO & President Jeffrey Hirsch.

Hirsch offers a three-tiered framework for the streaming marketplace, and speculates on streaming services becoming logical, bundle-type partners for each other (Hirsch offers a hypothetical example of Netflix and Starz):

  1. Tier one is very large, very broad programming services (first-on in-home): NFLX, Hulu, Disney+, HBO Max, Amazon Prime, possibly ViacomCBS’s “House of Brands” and NBCU’s Peacock.
  2. Tier two offers premium bespoke content like Starz, Showtime, and EPIX which are complementary services to the first tier; and,
  3. Tier three offers services with niche, super loyal audiences like Acorns, Shudders, IFC, and Sundance TV.

Hirsch’s points about bundling and channels also tie into three themes from this newsletter:

  1. both Hirsch’s market tiers framework and pro-channels argument reinforces how Amazon quietly has its thumb on the OTT marketplace, driving anywhere between 60% to 75% of subscriptions for apps which rely on it for distribution.
  2. how channels like Amazon Prime Channels, Roku, Apple TV, Comcast’s Xfinity box, and smart TV software are establishing themselves as intermediaries between the OTT streaming services/SVODs and their consumers; and,
  3. how Netflix told us 63MM is the ceiling for U.S. SVOD market penetration, and according to Hirsch’s math for lost Comcast subscribers, bundling could take Netflix and other SVODs past 63MM

The overlap between Hirsch’s perspectives and past PARQOR themes helps to better understand how these two trends of channels and bundling in the SVOD space are evolving. Moreover, this overlap helps to surface a surprising conclusion: Starz’s ideal partner, if not buyer, is HBO Max.

Conclusion

Ultimately, Hirsch is teasing that there is inevitably a shift coming in the SVOD marketplace. Starz is experimenting with early models for this shift, and he is suggesting bundling “could” work.

Given how much tier two and tier three services rely on channels services (60% to 75% of subscribers!), it is hard to believe that bundling will become much of a presence. So, the real revelation here is all evidence points to an outcome where Starz can win without being stuck in Tier Two: that outcome is Starz being sold to HBO Max. I think Hirsch is trying to make that case subtly here. That will be a win-win which results in a revenue-generating relationship for both sides.

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