Why Mobile Carriers Want to Cover Your Netflix, HBO, or Hulu Bill So Badly
That makes Sprint the third major mobile carrier bundling a free Internet video service. AT&T gives away HBO and T-Mobile customers get Netflix. And it’s only a matter of time until Verizon joins the party, as CEO Lowell McAdam was hinting a few weeks ago.
The carriers already got into a fierce price war over unlimited data plans last winter. Now the battle has moved to add-on freebies. An HBO Now subscription usually costs $15 a month, the Netflix standard HD plan costs $10 (soon going to $11), and Hulu’s limited ad plan is $8.
Why have the wireless carriers become so eager to pick up customer’s video bills? In some ways, as customers have shifted their viewing habits from TV sets to mobile phones, they’ve created an opening for an update of the classic cable TV bundle.
Bundling is a common strategy in markets where customers can easily switch among competitors. By combining multiple services on one bill, often with a discount, a customer may be more likely to stick with the provider than defect, lowering the provider’s annual churn rate.
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And that seems to be exactly what’s happening in wireless, where millions of customers a year typically switch carriers in search of a free phone or better deal on monthly rates. AT&T (T) CEO Randall Stephenson explained a few months ago why his company was giving away HBO and deeply discounting its DirecTV Now service for wireless customers. “The whole point of this is multi-product households churn dramatically lower than single-product households,” he said.
AT&T got the party started back in April, giving free HBO to customers on its higher-end unlimited plan, then expanding the offer to customers on its lower-priced unlimited plan in September, just after T-Mobile (TMUS) unveiled its free Netflix deal. While an HBO Now subscription is the most valuable among the freebie offers, AT&T is also on the cusp of acquiring HBO’s parent company Time Warner (TWX).
For consumers, “their video and wireless bills are likely two of the most important monthly subscriptions in their lives, so bundling them together and offering discounts makes for a compelling value proposition,” says Jan Dawson, chief analyst at Jackdaw Research. “The video providers are very willing partners because customer acquisition costs and churn can be high and both will be much lower through a partnership like this,” Dawson adds.
Hulu is the third-largest subscription Internet video service after Netflix (NFLX) and Amazon’s (AMZN) Prime Video, analysts say. It is owned by major TV producers Disney (DIS), 21st Century Fox (FOX), Comcast (CMCSA), and Time Warner.
Of course, each wireless carrier is only offering one service free. That’s a great deal if the service is of interest. But it also complicates making a free choice among video and wireless services. A customer who prefers, say, Sprint (S) wireless service and Netflix programming is out of luck at getting that bundle.
Internet video services aren’t interchangeable. Each of the major Internet video services has tried to stand out with original (and exclusive) programming. Stranger Things fans have to pay for Netflix, The Handmaid’s Tale is only on Hulu and HBO has a bevy of well known shows, from Sex in the City to Westworld to Larry David’s Curb Your Enthusiasm.
And wireless service isn’t really a commodity, either. Verizon (VZ) and AT&T have broader national network coverage, but surveys have shown that coverage in any particular metro area can vary greatly, as can average download speeds.
So the Internet video free offers can be a great deal—if they coincide with a customer’s viewing preferences and wireless needs.