Was Starz CEO Jeffrey Hirsch’s Bundle Prediction Right?

parqor disney+

It has been a big week for bundles in streaming: a Disney-Verizon deal announced a new Disney+/Hulu/ESPN+ Bundle free for Verizon Unlimited subscribers, and  Apple and ViacomCBS confirmed a discounted Apple TV+/CBS All-Access/Showtime bundle subscription.

I wrote about bundles back in June in “Starz, Amazon Channels, and The Future of Bundling“, both as a blog post and as a mailing exclusive to Members. It was inspired by this compelling, must-watch/listen conversation on the Variety Strictly Business podcast between Andrew Wallenstein and Starz CEO & President Jeffrey Hirsch.

In that interview, Hirsch offered a three-tiered framework for the streaming marketplace, and speculated that on streaming services would become logical, bundle-type partners for each other (Hirsch offers a hypothetical example of Netflix and Starz).

Except, we have yet to truly see that type of bundling. Whereas Apple TV+ bundled with Showtime and CBS AllAccess falls somewhere closer to Hirsch’s prediction (I explain below why I think it is different), we are seeing something entirely different play out with Verizon and Disney.

Verizon & Disney+/Hulu/ESPN+Bundle

As CNBC’s Alex Sherman writes about the Disney-Verizon deal::

Verizon, which owns Fios, a provider of internet, landline phone and bundled television, announced an offer this week for some of its premium wireless customers that includes Disney+, Hulu and ESPN+, at no additional cost, without a promotional roll-off deadline. Subscribers to the plans also get Apple Music included, either for six months or indefinitely, depending on the plan.

Notably, this bundle does not fit into any of Jeffrey Hirsch’s three tiers. Rather, it is “free add-on” content for Verizon consumers only.

Sherman poses a good question:

All of this “free” add-on content has major implications for media and telecommunications companies. Most dramatically, are we seeing the formation of a new way to sell media, when wireless and cable providers will strike exclusive deals to offer baseline packages, and consumers can choose to add streaming services a la carte? And does that mean the old way — bloated cable bundles — is dead and never coming back? 

What makes it a particularly good question is how much its business logic – streaming services will be add-ons, and not bundled – contrasts with the cable bundle business logic of Hirsch’s three tiers:

  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.

Disney+ and Hulu (Tier one services) and ESPN+ (Tier 2) are already pre-bundled by Disney, and only Verizon subscribers can add this bundle à la carte, for free. It is a “totally different” business logic than cable, as Verizon CEO Hans Vestberg says.

Apple TV+ & CBSAccess/Showtime Bundle

On Monday, Apple and ViacomCBS announced “a bundle of CBS AllAccess and SHOWTIME for only $9.99 per month after a seven-day free trial” exclusive to Apple TV+ subscribers.

It is a bundle, and certainly could fit Hirsch’s model: Apple TV+ is presumably a Tier One service (given scale of Apple devices, alone, and not the rumored disappointing figure of 10MM sign-ups through February), and Hirsch was not sure whether CBS AllAccess was Tier One or Tier Two (Showtime in Tier 2).

But, then again, Apple TV+ is not (yet) a streaming service like Netflix or Disney+ with international scale and continued growth. So, a bundle relies less on the scale of Apple TV+ as a service, and more upon Apple’s software install base. That is less like a bundle in the traditional cable sense, and more like a marketing partnership.

Journalist Matthew Keys had an interesting take on this point:

Monday’s announcement puts Apple TV in direct competition with one of those upstarts: HBO Max, an AT&T-owned service that combines HBO’s content library with TV shows and movies from other WarnerMedia brands. The combined Apple-Viacom offering will cost the same $15 a month as HBO Max, and like HBO Max, the Apple-Viacom bundle will be commercial-free.

Unlike HBO Max, Apple’s bundle will be available to Roku and Amazon Fire TV users, since the Apple TV app is supported on both devices as well as Apple’s own hardware.

What Keys is saying is, this “bundle” is more like AT&T’s Wholesale model than it is like an MVPD-type bundle Hirsch envisioned, and therefore it competes more directly with AT&T’s HBO Max. Meaning, CBS AllAccess and Showtime help to convert existing Apple device owners to TV+ subscribers, and in turn, that will generate for Apple’s Services business an additional gross of $4.99 plus its share of $9.99 from ViacomCBS. It is all additional gross margin with zero marginal costs.

The Bundle as a Tactic and Not a Strategy

A Verizon executive answered Alex Sherman’s question, above, about whether the cable bundle model was dead [bold text added for emphasis]:

“The current value chain of the media business is not working. It’s broken,” said Frank Boulben, Verizon Consumer Group’s senior vice president of marketing and products, in an interview with CNBC this week. “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.”

I think that “Content has a key role to play is the key takeaway from both of these stories. For all the reasonable reads of these two partnerships – Disney-Verizon and Apple-ViacomCBS – as evolutionary versions of MVPD-type bundles, the reality is they are more tactical than strategic. As CEO Hans Vestberg told CNBC last month:

“We are touching more consumers than any other brand daily. So, of course, we can partner with Disney… we can partner with Apple on exclusives on Apple Music, and still get the same sort of our offerings for customers but with a totally different model.”

Neither Verizon nor Apple need MVPD-type bundles as fundamental value propositions. Instead, partnerships with streaming channels like Disney+ or CBS AllAccess become tactical tools for converting and/or retaining particularly valuable target audiences. For Verizon, those are Unlimited customers are worth anywhere between $70 and $80 a month, and for Apple, those are 100M+ Apple device owners in the U.S. who could spend an additional $4.99 per month.

In June I predicted for Starz:

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 be much 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.

Meaning, then I thought Starz was angling to be sold to WarnerMedia. But now, Disney and Verizon have given Starz a model to be a tactical add-on for AT&T to convert African-American and females who watch HBO and Starz. That, too, would be a bundle, but as a tactic for AT&T and not as a strategy for WarnerMedia.

Monday AM Subscriber

Free

Curated “earthquakes”, key stories, and blog posts from the previous week which prepare you for your Monday am meetings.

Membership

$49/month

Analysis that ties the big picture of the streaming marketplace to executive and investment decision-making at streaming companies


Downloadable reports and whitepapers


Subscribe annually for $499/year

Elite

Contact Us

Contact us to learn about our Elite plan, which includes consulting (1-hour meeting per Quarter) and our exclusive off-the-record meetings and presentations with C-suite and senior executives