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The Streaming Rebundle


Article by Phil Kernen

Photography by Phil Kernen

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"There are two ways to make money in business: one is to bundle; the other is to unbundle." The quote came from Jim Barksdale, who helped bring Netscape, one of the first web browsers, to the public markets in the late 1990s. It is a relevant quote to remember as we think about the explosion of streaming options that arose over the last several years, offering alternatives to cut the cable cord. But what does the collective struggle for streamer profitability tell us about their place on the bundling continuum?

Though most of us think of the big five streamers (Netflix, Amazon Prime, Hulu, Disney+, and HBO Max), more than 200 streamers worldwide deliver programming to your screen. Some are profitable, but most aren't due to high start-up and operational costs. Whereas investors once gave streaming services wide latitude to spend, based on the agreement that gaining subscribers came before profits, that willingness has diminished along with equity market returns. 

The growth in streaming options reflected a milestone in the long-awaited unbundling of cable, though mini-bundles might describe many streaming options. Customers could now buy only the content they wanted individually or better select the channels in their package. Or if the channel was streaming, they could access it directly. They no longer have to subsidize low-quality content in their cable packages as the price of accessing the high-quality stuff. Sports lovers coveting ESPN no longer had to support the History channel if the cable company paired them in the same bundle. 

Despite the positive consumer reception, most streaming services aren't profitable.

Technology costs to get started are high. Churn is a problem, with many viewers signing up to binge one or two popular shows, dropping their subscriptions, and moving onto another platform the following month. Content costs have exploded too. Bankrolling the pursuit of appealing programming designed to lock viewers in your ecosystem has become the new space race for streamers. 

Content has come to be the most significant expense for streamers. In 2021, Disney reported spending $25 billion on content and planned to increase that to $33 billion in 2022. Even smaller streamers are creating new material. Peacock spent $1.5 billion in 2021 (and lost $1.7 billion) and plans to double that in 2022. Unbundling has been great for consumer choice and entertainment options, but with a few exceptions, it has proved unprofitable for streamers. With that in mind, it's time for streamers to consider bundling again. How might that look today?  

Combine streaming services

Streamers may elect to combine in ways that reduce churn and production costs. It might be an internal bundling like Disney offering to combine Disney+, Hulu, and ESPN for less than what it could cost for each separately. A more extensive library of disparate choices could keep a viewer happier for longer, reduce the need to look elsewhere, and reduce churn. 

It might look like two niche services with different audiences coming together. Consider Discovery+, whose target audience is viewers interested in non-fiction and documentary content, reality-based/unscripted series, and lifestyle programs such as food, home improvement, and travel. Conversely, HBO hosts many movies and heavily watched original programming. Complementary content leading to more loyal subscribers and reduced operating costs forms the basis for the planned combination in 2023.  

Consolidate content creation

Streamers creating content take on substantial risk when funding the production of programming that might fall flat. The alternative is licensing content already deemed successful and in demand, focusing limited resources on technology and client experience and leaving the creative risk to deeper pockets. Before increasing their content budget, some of the most watched shows on Netflix included licensed shows like The Office, Friends, and Seinfeld. 

Monetize content libraries

Much like movie studios from the mid-20th century, whose vast film libraries became more valuable as new distribution methods arose, the value of rapidly growing libraries created by streaming services will also increase. While Amazon's decision to buy the MGM film and television studio was a play on future content creation, the more significant immediate impact will come from the MGM catalog of 4,000 film titles and 17,000 TV episodes. We have yet to see a streaming service sold primarily for their catalog in the same way, but the value is growing with the development budgets exploding.   

Single point of access

Some streamers are doubling down on technology to offer more of what viewers want. Youtube has been talking about creating a channel store where subscribers could add subscriptions to other streamers a la carte. This option would add to similar channel stores from Amazon, Roku, and Apple. Netflix and other streamers have agreed to be part of Verizon's Plus Pay service. Platform owners earn a portion of subscription fees, streamers open channels to potential customers, and viewers have a better experience, or so it is hoped.  

Live Programming

Discussions on how to make viewers stickier usually end with sports programming. Live sports kept many viewers tethered to their cable package longer than they would have otherwise. Many platforms offer sports, but finding the best service to meet your interests can take time and effort. Hence, most options remain small, an example of how specialization limits the growth most investors expect. Exceptions among the large streamers include Amazon, which offers sports content produced by others and bids on certain production rights directly. 

ESPN+ and Hulu offer the same combination under the same ownership. However, Disney+ also pushed off expected streaming profitability due to growing costs and is under new leadership, so things will likely change. Sport is a major draw for viewers, but sports programming is also costly. Higher subscription rates to cover those costs led to the increasingly untenable monthly cable bill that started the complaints about bundling in the first place. Placing too heavy an emphasis on sports can risk pushing costs out of line with what subscribers are willing to pay. 

The possibilities are by no means limited to the ideas above. However, observers agree that rebundling would differ from the past's overpriced, under-watched cable bundles. Challenges with high customer churn and massive content creation costs will lead streamers to find different ways to offer more in exchange for greater profitability.

DisclosureThis is for informational purposes only, and any reference to a specific company does not constitute a recommendation to buy or sell that company. The reader should not assume that an investment in the security identified or described was, or will, be profitable.   For a complete list of disclosures, please click

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