Why bundling has its limitations in streaming, especially in sports streaming

There has been an emerging, evolving discussion of the growing role of bundles in the streaming marketplace. Some of the more recent chatter has been driven by the merger of WarnerMedia and Discovery: that merger will result in a bundle of WarnerMedia and Discovery channels and streaming services. The outcome also reflects the shortcomings of AT&T’s bundling strategy relative to its competitors Verizon and T-Mobile.

The more familiar definition of a bundle comes from the cable model: MVPDs aggregated audiences at scale through fiber or satellite connections, and bundles made the economics of consuming linear cable more affordable for those audiences. In that model, both demand and supply are effectively guaranteed by the infrastructure of cable distribution. It was best explained by the economics 101 definition of a natural monopoly: MVPDs had high start-up costs but offered powerful economies of scale. The bundle reflected the pricing power of MVPDs resulting from that scale, allowing them to effectively trade the widest possible access to consumers in exchange for lower retransmission fees.

With the ongoing loss of cable households (now at ~85MM), there are fewer subscribers to justify lower user costs, making the rise of streaming as cable’s replacement increasingly inevitable.

But, in streaming, the objective for every service has been to disrupt that bundle model by circumventing MVPDs and building direct-to-consumer models at scale. Netflix has found success reaching as many as 68MM American subscribers directly, and both STARZ and AMC+ have found successful streaming models at 10-15% of that scale. Otherwise, without the infrastructure of cable, no streaming service has aggregated broadband households across the U.S. with a business model that mirrors the infrastructure that led to over 110MM households with cable. Without hardware and distribution infrastructure to ensure both scale and stability in its subscriber base, the DTC relationship in streaming is ephemeral.

That limits bundling as a solution in two ways. First, bundling may aggregate subscriber audiences at scale, but that relationship is ephemeral. Secondly, personalized user experiences create a higher probability of viewing audiences at scale than bundling. Two perfect examples of this are Hulu and Amazon Prime Video.