The 200,000 subscribers Netflix (NFLX -4.96%) lost in the first quarter of 2022 caused many investors to question the fate of the streaming giant. The streaming market has undergone major changes in recent years, with expanded choice driving many consumers to offer the best entertainment at the best price.
Amidst the fierce competition in the streaming market, some companies have found a way to keep consumers loyal to their subscriptions by bundling a streaming subscription with other useful services. Attractive bundles could be the way forward for streaming platforms looking to gain an edge over the competition.
Bundles imprison people
Apple (AAPL -3.60%) and Amazon (AMZN -4.15%) both skillfully use bundling to encourage consumers to stay subscribed for the long haul.
Amazon’s streaming service, Prime Video, offers the company an opportunity to lure consumers into opting for its lucrative Prime membership. Once these subscribers have arrived, they often try other services in the package — and become increasingly dependent on them. Prime Video has historically operated at a loss, but the number of Prime subscribers it helps retain seems worth every penny.
Amazon founder and former CEO Jeff Bezos said in a letter to shareholders in April 2021 that the company has “more than 200 million Prime members worldwide,” doubling from 2018 when the company reported 100 million subscribers. As of July 2021, an estimated 151 million Prime memberships came from the US — 58% of the country’s population — according to eMarketer. Analysts expect that number to increase to at least 168 million by 2025.
Meanwhile, Apple’s bundled services are similarly creating an excellent opportunity for consumers to try out the company’s alternative offerings while continuing to introduce people to the Apple ecosystem. Though Amazon uses its streaming service to fuel Prime membership growth, Apple TV+ was designed to provide another revenue stream for its parent company.
Services are quickly becoming a bigger part of Apple’s business thanks to their high margins. In the first quarter of 2022, the company’s costs of manufacturing physical products like iPhones and Mac computers accounted for 63% of that division’s net sales. However, when it came to services, their costs accounted for 27% of sales.
Bundles offer more value
As the cost of living rises around the world, many consumers are cutting back on discretionary spending, making it difficult for streaming services to retain subscribers. A recent study showed that 33% of people plan to add a new TV subscription in the next six months, while 30% plan to cancel one.
Apple introduced its Apple TV+ streaming service in November 2019 for the comparatively low monthly price of $4.99. The company also offered several options to get up to a year of free membership with the purchase of eligible Apple products. TV+ is just one of many services Apple sells, including Music, Arcade, Fitness+, News+ and iCloud+.
The cheapest of Apple’s three packages offers $14.95 for one person for access to TV+ (4K, six streams), Music (over 90 million songs), Arcade and 50GB of iCloud storage. Alternatively, Netflix’s cheapest tier is a $15.99 subscription, which offers two simultaneous HD streams and access to the recently added Netflix Games, a currently small library of mobile games that the company is looking to expand.
Amazon’s Prime membership costs $14.99/month or $139/year ($11.58/month) for free two-day (or faster) expedited shipping, Prime Video, Amazon Music, Prime Gaming, and Amazon Photos ( unlimited cloud storage).
While individual services like Netflix and HBO Max arguably offer a wider variety of content, the other services offered in Apple’s and Amazon’s bundles offer more value. For households that are already subscribed to streaming video and music, combining these offers with a low price seems far more attractive than paying for them separately.
How can Netflix benefit from bundles?
Netflix’s involvement in gaming suggests it understands the benefits of bundling. The company acquired game developer Night School Studio in September 2021 and both Next Games and Boss Fight in March 2022. Although Netflix Games is still in its early stages, a successful expansion of the service would add a second pillar to the company’s existing offerings .
There were also rumors that Netflix might buy the streaming company roku. The latter company’s hardware and software could open the doors for Netflix to offer even more services to its members, making it even harder for consumers to walk away.
Potential investors in streaming services should watch how the parent companies of services like Netflix, Paramount, HBO Max, Peacock, and others combine their services into one neat package for consumers. Any acquisitions that might diversify a company’s offering might also point to the potential for a lucrative package.