Tuesday, April 4, 2017, 12:03 PM ET|Posted by Will Richmond
Recode reported a couple days ago that Apple is potentially looking to sell online subscriptions to HBO, Showtime and Starz in a single bundle to subscribers. Since Apple has made so little progress in video compared to its peers, a bundling move like this could give it a boost. But if I were handicapping which company is much more likely to sell HBO, Showtime and Starz in a discounted bundle - and succeed with it - I’d put my money on Amazon far sooner than Apple.
The concept of bundling premium networks in a discounted package is not new. Pay-TV operators have been doing this for ages, recognizing that videophiles who enjoy HBO are the most likely targets to also subscribe to Showtime and other premium networks.
But the most important thing to think about in any discounted bundle model is that the premium networks are going to take a hard look at how much they’re being asked to reduce their wholesale price to the retailer in the exchange for gaining more subscribers via a bundle. Nobody is inclined to slice their own margins unless there’s genuine upside potential.
Due to this reluctance, a key way to mitigate the premium networks’ margin erosion is for the retailer to absorb the margin cut itself. For example, right now on Apple you can subscribe to HBO Now for $15/mo, Showtime for $11/mo and Starz for $9/mo, for a total of $35/mo.
Now, let’s just say if Apple wanted to offer that bundle for $30/mo, somebody has to absorb the $5 discount. The problem is that Apple is a high margin company, and if anything, it is known to charge relatively high fees to content and app partners, which has been a sore point over time. So while Apple might like to offer a bundled discount of HBO, Showtime and Starz, it is unlikely to invest in the bundle itself, by subsidizing the discount and lowering its own margins.
Conversely, Amazon is a low margin company that has repeatedly shown its willingness to accept slim profits in the interest of building up products and market share (as a perfect example, see its escalating price war battle with Walmart). Wall Street has rewarded Amazon’s low margin, growth-oriented strategy, with the stock now reaching all-time highs, and CEO/Founder Jeff Bezos in spitting distance of becoming the world’s richest person.
But Amazon’s low margin orientation is just the start. Amazon has built up its “Channels” business over the past 1 1/2 years, offering subscriptions to over 100 different SVOD services, including HBO, Showtime and Starz. It has gobs of data on what customers are subscribing to and watching, giving its data scientists an edge in formulating and testing optimal packages. That’s all on top of insights drawn from viewership of its own originals.
Amazon’s data advantage was just one of many reasons why back in December, 2015 when Channels launched as the Streaming Partners Program, I asserted that the company could disrupt the entire SVOD industry.
Last but not least, when subscribing to SVOD services, the provider’s content all becomes available within Amazon’s app, unlike with Apple’s model, where each individual content provider’s app must first be downloaded. Removing this little bit of friction and allowing viewers to move seamlessly across content sources to access their favorite shows (and get recommendations) sets the stage for Amazon to focus on programs in its bundled offers rather than just the network brands themselves (whether that’s long-term threatening to the network is yet another story).
Amazon has long since established its reputation as the world’s foremost online retailer, with its Prime program an enormous value creator. Just as it has figured out how to merchandise tons of other products to deliver superior value to Prime subscribers, it will do so in video as well. Apple may have a larger footprint in devices, but commerce experience coupled with a low margin DNA makes Amazon the frontrunner in any premium network bundling initiatives that may be coming.