Rogue Waves: The Ripple Effect From The Streaming Wars

Food, water,and shelter are at the core of what we consider essential. Very close to that trio is your cell phone and not far behind your phone is access to music and video entertainment.

AT&T, Verizon, and T-Mobile/Sprint are set to become the beneficiaries of the ongoing streaming war & battle amongst subscription music providers. We are set to see the continued competition of which carrier offers the best bundle of Phone/Music/VOD… and a fourth element that I will get to later.

The current combat zone is wide with a lot to still be gained. The music streaming battle features Spotify, Apple Music, Youtube Premium, Amazon Music, SiriusXM, and Tidal. While the streaming wars feature Netflix, Prime Video, Hulu, Disney+, Apple TV+, Peacock, HBO Max, CBS All Access, and the behemoth that is traditional cable.

All these companies are vying to increase and retain monthly billings while avoiding the costs they incur from the toll booths that are the Apple App Store and Google Play Store. The new and preferred toll booths ,the cell phone carriers, will leverage their strong contracts to ensure monthly billings while being a powerful customer acquisition channel. This has already begun as witnessed by T-Mobile’s Netflix on us -where new and existing T-Mobile customers get Netflix basic for free.

The carriers are in position to make VOD and music subscriptions vastly more appealing to consumers while making these same consumers vastly better customers to the content providers. Most illustrative of this dynamic is the promotion from Boost Mobile (Sprint) of Unlimited music streaming with select partners- this is a list all music streaming services should aim to be on. The valuation of music streaming services hinges on the question of who has more leverage- distributors or suppliers. If one believes the distributors (music streaming services) currently have less leverage than the suppliers (record labels) then it would be logical to say the cell phone carriers have the power to shift this dynamic. An exclusive partnership between a carrier and music streaming service where consumers got the service ‘free’ would likely lead to a consolidation of only three major music streaming services as the other carriers would look to match the promotion. Since the carriers are the new toll booths they won’t do this. Instead the music streaming services will bid to be placed into carrier bundles and added to lists like Boost’s where consumers receive unlimited streaming. The music streaming services themselves are now further commoditizing music streaming by creating tools that decrease the friction between switching services, which is nothing but a boon to the carriers.

VOD will follow a similar playbook as a key ingredient of the carriers bundles but the VOD providers will endure less bullying from the carriers as their service can not be commoditized as easily. In a world where the bundle reigns supreme consumers will likely have one VOD that’s included with their phone contract and then they may be promiscuous and experiment with other VOD providers. No one VOD will reign supreme as a popular show can emerge overnight and people will want to be able to discuss it with friends. This is where the new toll booth operators can nudge consumers to add this secondary VOD onto your phone bill by promoting data usage discounts.

Consumers will have flashbacks to the days of the original Cable Bundle of Internet/Home Phone/Cable when they’re inundated by the phone carrier’s new bundled offerings. While the carriers fight to gain bundle supremacy another company is not so quietly offering it’s own bundle with little direct competition. Amazon’s Prime offering includes both VOD and music but also best in class free shipping benefits from Amazon.com, free shipping from Whole Foods, promotions from Twitch, access to e-books, and special cash back on it’s own Prime Visa credit card. Prime is $119 a year, Spotify premium is $119.88, and Netflix is $107.88 a year for the basic plan. For a much lower price Prime is able to satisfy the need for music & VOD while boasting unmatched features, so why is this even a debate?

While Amazon Music Unlimited’s library is comparable to the other top music streaming options their VOD isn’t quite on par with HBO in terms of quality, Netflix in terms of selection, or HULU in terms of being a viable cable substitute. This grading is subjective and forever shifting but the larger point remains that their music and VOD is part of a larger bundle. A bundling that includes free shipping in a world where consumers continue to adopt E-commerce as their preferred method of shopping for groceries, consumables, and frivolous goods. Is Amazon set to become the sole E-commerce and shipping success story? Of course not.

Walmart, Target and Costco have continued to excel and grow same store sales but is driving to a store, laboring through the isles, waiting in line, and transporting these goods home a robust sales pitch as Millenial and Gen Z spending continues to become a bigger part of GDP?

Phone/ VOD/ Music/Retail is the foundation upon which the phone carrier bundle wars will be fought. The new toll booths will a leading cause of consolidation of retailers, the commodification of music screaming and the proliferation of big budget VOD production.

Value Packed Bundles

Costco is best positioned to be included in a phone carriers bundle as their memberships will equal instant savings to consumers that would justify the increased phone bill. “I now shop at Costco, the membership comes free with my phone” is the type of statement that will polarize both the consumer with this added benefit and the one who is upset that their phone carrier is now giving them a lesser deal.

With Amazon and Costco now firmly in place as the retail ingredient of a carrier’s bundle where does this leave the former largest retailer in the world? Unlike Amazon and Costco you don’t need to join a membership program to gain the full advantages of shopping at Walmart. Walmart is in the awkward position where it won’t be the cheapest option for consumers willing to do the manual labor of shopping themselves and won’t be the most convenient option for those looking to automate their chores. Even today Target boasts a more favorable experience for those willing to shop themselves. Target stores are integrated with Starbucks, CVS Pharmacy’s, and Disney Stores, to go along with it’s legitimate clothing and make-up options. Your local Walmart may have a Subway inside and a few more SKUs but the shopping experience is decidedly inferior to that of Targets.

People prefer ‘free’ stuff over discounts. That’s why having Prime included with your phone and a Costco membership included with your phone is a uniquely valuable proposition. Consumers really don’t alternate where they do their weekly shopping for goods and groceries allowing this integration to be a powerful reason to both switch to a certain provider and to not switch away. Perhaps Target’s Shipt will grow into a viable way for them to treat the excess capacity within their stores as a live warehouse while simultaneously remaining a destination of pleasurable shopping. Perhaps Shipt can be a service included a phone carriers bundle. Since it’s reliant upon human labor perhaps Shipt can morph into a service that accomplishes more chores than just shopping. Either way, Walmart looks like the odd man out.

In sum, the streaming wars have brought great attention to the various promotions and partnerships between VOD/ Music subscription services and the major phone carriers. It’s clear the carriers are in a key position of influence for the success of these services. A few takeaways:

  • VOD will remain a war, with so much great content consumers will be promiscuous between providers. Having your VOD added into a carriers bundle will do wonders bottom line of VOD providers while increasing the eyeballs on the content which hopefully leads to more “must watch” content.
  • Music Subscription Services are really in a battle to gain enough market share to gain negotiating power with the record labels. The best way to accomplish this would to be included in a carrier’s bundle.
  • Amazon Prime has fundamentally altered the value proposition of all competing VOD/ Music subscription services as they have included unparalleled retail benefits. The first carrier to promote Amazon Prime in their bundle in a meaningful way will trigger a rush for competing carriers to onboard Costco and perhaps Target/ Walmart.
  • Apple is in an odd position as they are apart of both the streaming wars and music subscription battles but their offerings don’t yet stand out as meaningful competition.