An Invasive Species

Content has infiltrated wireless connectivity in the US

On 23 October, Verizon and Disney announced an exclusive partnership under which existing and new Verizon wireless customers will receive a 12-month subscription to Disney’s upcoming streaming service, Disney+.

To be eligible, customers must be on or move to a Verizon post-paid unlimited mobile data plan. The offer is also available to new customers of Verizon’s home broadband services including its new 5G-based fixed wireless service, which has a very limited reach. Disney+ works on any compatible device and allows four simultaneous streams. Verizon and Disney said the deal is part of a broader partnership that will include the development of content designed to take advantage of Verizon’s 5G network.

The companies didn’t disclose financial details of the deal, but we note that both stand to gain significantly. Disney could get millions of Verizon subscribers nearly from the get-go: according to Verizon’s results for 3Q19, the carrier has almost 90 million consumer post-paid phone users from about 33 million accounts, although not all are on unlimited data plans. These numbers were large enough to worry Netflix investors, as Netflix shares tumbled almost 4% when the deal between Disney and Verizon was first announced. However, shares did rebound quickly, perhaps partly thanks to the realization that these streaming services aren’t mutually exclusive.

When details of the Disney+ service were made public earlier in 2019, we called it a very attractive offering that would change the landscape for streaming and broadcast video content services (see Beauty and the Beast). We said it would spark an interesting competitive scuffle in the era of digital entertainment. Considering Disney has a vault filled with some of the most valuable entertainment brands in the world including, beyond Disney classics, Pixar, Marvel, Star Wars and National Geographic, the service has a broad appeal out of the gate. Disney+ goes live on 12 November 2019 and eligible Verizon customers will be able to sign up on the day of launch.

Disney+ is priced at $7 per month or $70 per year, making this a nice perk for Verizon’s customers. But this sort of add-on has become almost standard, and is a reactive move by Verizon that follows similar offers from AT&T, T-Mobile and Sprint, all of which are bundling unlimited connectivity with video content. Although Verizon also gives six months of free access to Apple Music to its unlimited data plan subscribers, it needed to bundle a video streaming service to keep up with competition.

AT&T, for example, provides subscribers to its unlimited wireless plan with 35 video channels including CNN, MTV, Hallmark Channel, History, Cartoon Network, Nick and Food Network. Furthermore, customers taking AT&T’s higher-end Unlimited &More Premium plan can choose an additional entertainment stream; choices include HBO, Showtime, Pandora Premium and Spotify Premium. Thanks to its acquisition of Time Warner, AT&T’s approach to video content packages is notably different from that of rivals.

Sprint offers its post-paid unlimited service plan subscribers access to Hulu and Tidal content, and T-Mobile includes a Netflix account with subscriptions to its unlimited tariffs. T-Mobile even gives an Amazon Prime account to certain subscribers to its Metro prepaid service, meaning that access to Prime video and music is included.

The importance of content goes beyond service providers: Apple is now offering a one-year subscription to its Apple TV+ service to customers buying a new iPhone, iPad or Mac device. Apple TV+, due to go live in November 2019, is unproven and has a very narrow range of content at launch, although the company has enlisted household names in showbiz to create exclusive content.

Wireless carriers in the US are looking to increase the value of their subscriptions by creating a holistic experience. Rather than engaging in a price-war by cutting subscription costs, AT&T, Sprint, T-Mobile and Verizon are choosing to maintain and even grow revenue by boosting adoption of unlimited data plans through a strategy of induced demand. These carriers currently enjoy some of the highest average revenue per user in the world and they’re not looking to mess with a good thing.

It’s no coincidence that this trend is happening as carriers are rolling out 5G services, which should enhance the mobile entertainment experience. Carrier quests for differentiating uses are likely to be heavily built on existing usage of mobile video, at least in the first phase of 5G.

Content has now become an integral part of the US wireless ecosystem, and carriers are looking to provide bundles through partnerships and vertical integration in video. Moreover, as competition among streaming services intensifies, carriers and manufacturers will become an increasingly important channel for services seeking to cast their net for fresh eyeballs.