Why you should care
Because bundles will determine the future.
Have you checked out Baby Yoda recently? The streaming wars are hot right now. We’ve had two new big entrants, Apple and Disney, this past year, both of which are throwing around a lot of money to generate content.
Apple launched Apple TV+, spending an unreal amount on getting Jennifer Aniston, Steve Carell and Reese Witherspoon to star in The Morning Show, with two seasons costing a whopping $300 million, or $15 million an episode. Disney recently launched Disney+ with headliner The Mandalorian (leveraging the Star Wars universe), which also costs about $15 million an episode.
The company with the better bundle will win.
You may think that winning the streaming race depends on having the best content, but things have already begun to change. As of now, the company with the better bundle will win, and that’s why it makes sense for Disney to buy Spotify this year.
The broader goal for these companies is to achieve growth for their shareholders. The best way to do that today is to have a business model with recurring revenue. That’s why everything is a subscription now, from Microsoft Office to Netflix to Tableau.
It’s a trend Apple knows it needs to bank on. After all, once it sells you an iPhone, you stop paying until you buy another of its products. That’s why Apple will keep asking you to upgrade your iCloud storage. It gives you 5 GB for free but keeps making your photos bigger with every new phone. Take all that into consideration and you’ll understand why services hit an all-time high in Apple’s earnings calls last year.
Apple basically wants to emulate Amazon. With Prime, Amazon was able to make the world’s biggest shift from transactional revenue to recurring revenue. Amazon globally offered Prime services in a bundle at a price that seemed too good to be true, with a typical Amazon Prime membership including one-day delivery (or even two-hour delivery), Prime Video, Amazon Music and Cloud Storage.
What Apple will eventually do is make a bundle of services to get that sweet recurring revenue. You are looking at Apple Music, Apple TV+, Apple Care, iCloud storage and Apple Arcade being offered to you at different price points to rope you in. This is why an Apple TV+ subscription is cheaper than Netflix and offered for free when you buy an Apple product. Once you have it and feel like you can’t live without it, you may be convinced to pay for it.
So when Apple TV+ launched, Disney entered the market with an uphill climb in front of it. Don’t get me wrong, Disney clearly has a huge advantage in terms of content. What it lacks right now is the ready-made parts to make and sell a bundle and a long-term market strategy. At some point, you cannot expect consumers to have a subscription to Netflix, Prime Video, HBO Max, Apple TV+, Hulu, Roku and Disney+. The key deciding factor will be which company offers the best bundle. The market will keep driving prices down and offering more price points for a larger share of the mean wallet.
Here is where Disney needs to step up. It has one of the world’s best, and best-loved, content libraries, but at the very least it needs to offer a music streaming service along with it. The other option here would be to offer Disney+ at an (almost) predatory price to keep up with the competition. When out looking for a music streaming service, it does not make sense at this point to build your own library. That would mean having an additional player fighting for market share from scratch.
Spotify is already in the market with a good product, decent market share and sizable brand loyalty. In the next three years, it is basically a losing battle with Apple Music and Amazon Music. Disney has deep pockets that will allow it to acquire Spotify. Also, acquiring Spotify is better than entering into a collaboration. A merger would mean that Spotify would still be a relatively independent company and also get a share of profits, something that Disney would be wise to avoid as a strategic measure.
We have yet to see what else Disney will add to its bundle, but a music streaming service at this point is essential to retain subscribers. The deciding factor in the streaming wars is rapidly becoming bundles, not content. Disney is already one step behind without a bundle of services to offer. Spotify is the perfect size and service to be step one in building a bundle.