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Disney's Powerful Bundling Potential Should Have Competitors Worried

Stephen Lovely, The Motley Fool

Walt Disney (NYSE: DIS) hasn't released its Disney+ service yet, but it's already changing the shape of the streaming video market. Netflix (NASDAQ: NFLX) CEO Reed Hastings recently sought to reassure investors that there's room in the market for new competitors. For example, Apple will come crashing into the streaming video on demand (SVOD) market in the near future, while Amazon (NASDAQ: AMZN) is already there. And then, there's Hulu, Netflix's longtime competitor, which is actually in Disney's portfolio, too. The entertainment giant became the new majority owner when it acquired the bulk of 21st Century Fox in a blockbuster deal (another deal with AT&T is bringing Disney closer to full ownership of Hulu).

The new streaming landscape is full of giants, but giants aren't always the most efficient operations. For Disney, the Fox properties set the stage for the creation of Disney+, but it also gave the company the aforementioned stake in Hulu -- an interesting situation, given that Hulu is a de facto Disney+ competitor. Hulu also has a live TV streaming service, which offers cable networks like Disney-owned ESPN, which recently gained its own streaming service, ESPN+.

A man watching TV while sitting on a recliner and holding a remote controller

Image source: Getty Images

It's a big bundle of assets, not quite in perfect harmony, so what do you do when you own a whole bunch of different streaming services, some of which seem to compete with one another? Well, if you're Disney, you bundle them.

Disney's big bundle

Disney says it's "likely" to bring its various streaming services together, and that's no surprise as it offers consumers an option to pay for the entirety of the company's content ecosystem. Meanwhile, Apple has yet to announce any bundling options for its Apple Music or soon-to-launch SVOD services. But Amazon de facto bundles its offerings as part of its Prime membership program, which includes its SVOD service and limited access to streaming music, among other perks.

But the size of Disney's bundle and the breadth of its offerings easily exceed those of any would-be Apple or Amazon bundle. Subscribers to all of Disney's services would get Disney+, Hulu, a multichannel live-TV service (which neither Netflix nor Amazon offers) thanks to Hulu's Live TV, plus live sports via ESPN+. On top of all of this, Hulu subscriptions currently include Spotify Premium. It's clear that Disney has many cards it can play as it considers what type of package to offer customers.

Bad news for skinny bundles

Netflix and the rest of the SVOD gang should be intimidated by that bundling potential. Disney's reach could surpass even that of Netflix, and customers looking for a simple all-in-one solution will find Disney's live and on-demand options very robust.

But if SVOD competitors should be afraid, skinny bundle competitors should be terrified. Skinny bundle profits have been weak to nonexistent for years now. Dish's Sling TV has done a decent job of building a subscriber base, but it's still tiny compared with the SVOD giants -- Sling TV had 2.4 million subscribers at the end of 2018, while Netflix had 148.9 million paying customers worldwide as of the end of March. AT&T's DirecTV Now actually saw subscriber losses in the fourth quarter of 2018, and Sony's PlayStation Vue has been rumored to be on its death bed for nearly as long as it's been around.

Disney is a huge company that doesn't need to generate any near-term profits from its Hulu services, but live TV could be an attractive part of an offering that includes Disney+. In fact, Hulu with Live TV -- which includes Hulu's on-demand service by default -- has fared pretty well, generating a respectable subscriber base of nearly two million.

On top of that, Disney controls ESPN. ESPN+ could easily become a way to deliver the ESPN cable channel to consumers directly, should Disney decide to go that route. Such a move would be devastating to skinny bundles -- sports have long been considered live TV's saving grace, and it's not an exaggeration to say that sports channels like ESPN are a central part of why skinny bundles exist at all. While this part of the equation is more speculative, Disney still holds the power to turn this fear into a reality, and it would be quite the wake-up call for many competing services.

Watch out for Disney

This is all good news for Disney, which is sitting pretty with one of the more successful skinny bundles (relatively), a growing sports streaming service, a respectable rival to Netflix, and now, a Disney+ offering with an enviable library of content. Combine all of that into a House of Mouse bundle, and you have an all-in-one streaming solution that quite simply can't be matched by any of its competitors unless they manage to join forces. The future of streaming has arrived, and it sure looks like Disney could be the biggest part of it.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stephen Lovely owns shares of Amazon, Apple, AT&T, and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.