The recent announcement by the Walt Disney Co. (NYSE:DIS) that it will bundle its three streaming services, Disney+, Hulu and ESPN+, into a single subscription was met with market enthusiasm. However, investors do not yet seem to appreciate that this move represents more than act of a single company; it is a signal of the next great paradigm shift for streaming.
Cable entertainment thrived thanks to bundled channel packages. The proliferation of streaming services, which now number in the dozens, has resulted in a fresh opportunity for bundled offerings to return to prominence.
While some companies will be able to thrive in a world of bundled streaming platforms and content, some will find the transition all but impossible. Disney, unlike many of its current and would-be rivals, has all the pieces in place to thrive in the world of bundled streaming.
The future is bundling
Consumers have been abandoning expensive cable packages in increasing numbers, a phenomenon driven in large part by the rise of streaming. Many content consumers find no need for pricey and complex packages, preferring the relative serenity of a few smallish subscriptions to a few key platforms. Unfortunately, as the universe of high-content streaming services expands from a handful of platforms into the dozens, such simple reasoning ceases to be possible.
Of course, there are already tools such as the Amazon Firestick, as well as dedicated companies like Roku Inc. (NASDAQ:ROKU), that provide means of accessing -- or at least organizing -- a multitude of streaming subscriptions. However, it is the prospect of bundled services across multiple providers that could really change the way streaming works.
Introducing bundling to the streaming world could be a real game-changer for the technology, offering consumers deals and single-portal access to a balkanized content ecosystem. As we have discussed previously Disney's decision to bundle Disney+, Hulu and ESPN+ as a single subscription for $12.99 per month appears like a brilliant method of expanding its subscriber base, while also migrating subscribers across its various platforms. The decision may end up representing something of a Rubicon for the industry.
The disruptor becomes the disrupted
Few would deny that Netflix Inc. (NASDAQ:NFLX) started the streaming revolution. Fewer still would question the company's status as top-dog among the available streaming services, such as Amazon.com Inc. (NASDAQ:AMZN)'s Prime Video, Disney's Hulu, and Apple Inc. (NASDAQ:AAPL)'s Apple TV. Indeed, most casual observers would likely confidently assert that Netflix is very much in the driver's seat when it comes to the emergent streaming content distribution and consumption paradigm. Yet, looks can be deceiving.
A Netflix subscription once garnered access to most of the content that was worth watching (or binging, anyway). Now, with Disney already abandoning the website and others following suit, Netflix's value proposition has started to deteriorate rapidly. Disney, meanwhile, is only beginning to experience the tailwind associated with a paradigm shift.
Disney should thrive in a world of bundled content packages. Indeed, the economics of bundling are particularly suited to the strengths of a company like Disney, which, as a vast media conglomerate, has learned how to serve profitably the tastes of customers across all ages, backgrounds, and geographies. It has a rich library of owned content, which it does not risk losing to the next media company's streaming platform launch.
Disney rises above
Bundling presents strong opportunities for companies with substantial financial or intellectual property-based resources (and doubly so for companies with both), which seems tailor-made for Disney.
As its library cannot be copied, and is essentially unrivaled in its wealth of beloved intellectual property, Disney represents a likely "must have" participant in virtually any serious streaming bundle offering.
Disney will also be able to leverage its broad experience and footprint in traditional media formats, especially broadcast television, to win the best possible concessions from any third-party providers or bundle package providers. That gives it a comparative advantage over many new platforms, especially those that lack significant relationships or experience working in the legacy media industry.
Disney's proactive strategy of self-disruption, combined with its unparalleled entertainment media arsenal, should end up paying dividends.
In the streaming wars to come, Disney appears well placed to thrive, in stark contrast to companies lacking similar levels of infrastructure or deep content libraries.
If history offers any lesson, it is to follow Disney's lead on issues related to marketable content creation and distribution.
Disclosure: Author is long Disney and short Netflix.
This article first appeared on GuruFocus.
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