"Superbundling" Will Work, Until it Doesn't

“Superbundling”-- the practice of offering a package of services from different providers--has a long history in the cable TV and telco businesses. For many decades, the "triple play" of home broadband, linear video and voice was a staple in the business.

"Superbundling" that linclude streaming services in the older bundles has gotten more traction recently with the contract signed between Charter Communications and Disney relating to carriage of linear and streaming video services. 

In many ways, that search for the "right" products in a bundle is the search for a "natural" bundle that makes sense to most consumers.

Traditionally, bundles have included Internet access, linear TV and phone service. In recent days mobility service has been added to the “natural bundle.”

In their search for additional “natural bundle” services, ISPs have looked at app security, electricity services, home security and now video streaming services, with limited success to date. So attention now has turned to integrating video streaming platforms like Netflix, Hulu, or Disney+.

As always before, there are advantages for consumers and providers that eventually become negatives for both. 

Consumers have preferred bundles for a simple reason: they save money. Suppliers like bundles because they boost perceived value, average revenue per account and reduce churn, while boosting revenue. 

But bundles eventually can become their opposite. Consumer opposition to linear video subscriptions now turns precisely on the “paying for products I do not want.” In the past, for example, some customers took triple-play packages of video, home broadband and voice for the savings, but never even activated the voice services that were part of that bundle. 

And that is one danger for bundles: customers might come to feel they are paying for products they do not want. So where the cable TV bundle once was pitched as providing value--many channels for one price--it became a negative as consumers found they were paying too much for too many channels they never watched.  

Also, buyers eventually come to distrust and dislike product bundles that obscure the actual cost of each product within the bundle, as well as the vendor lock-in that the bundles represent. 

There is a delicate balance between cost, choice and simplicity that always has to be faced, where it comes to bundling. More products for one price--presumably representing equal increases in value--works. Until it doesn’t.

The Coming Age of Streaming "Super Bundles"

"Super bundles" are coming in the video streaming business.

If there is anything we can “know” about consumer preferences for buying video content, it is that convenience, price and simplicity are desirable. In either linear or “streaming” eras, consumption therefore always has involved some amount of bundling.

Content was aggregated into broadcast channels; then cable TV channels and now streaming service brands. 

What consumers never have had, in the video format, is a la carte access to individual shows. That has remained a staple for the theatrical exhibition business (movies shown at movie theaters), but the video business always has involved bundling. 

And that means the next era of streaming evolution will involve the creation of “bigger” or “broader” bundles that essentially replicate the value of the older linear format: pay one price, get lots of content, at one place. 

Whether the packing is “channels” or “streaming services,” some form of bundling always is required, as the cost of distribution of single shows or episodes is too difficult a business model, either for suppliers or consumers. Simply, the cost of selling or buying a single episode is too high, at the volumes most consumers will prefer. 

Cost element	Description
Content acquisition	The cost of acquiring the rights to distribute the content. This can be a significant cost, especially for popular content.
Content preparation	The cost of preparing the content for distribution. This includes tasks such as encoding, transcoding, and packaging.
Content delivery	The cost of delivering the content to consumers. This includes the cost of bandwidth, content delivery networks (CDNs), and other infrastructure.
Payment processing	The cost of processing payments from consumers. This includes the cost of credit card fees, fraud prevention, and other services.
Marketing and promotion	The cost of marketing and promoting the content. This can be a significant cost, especially for new or niche content.
Customer support	The cost of providing customer support to consumers. This includes the cost of staffing call centers, providing online support, and handling customer inquiries.

In addition, there are indirect costs:

• The cost of maintaining and updating the underlying technology infrastructure.

• The cost of managing and protecting intellectual property rights.

• The cost of complying with regulations.

• The cost of managing and resolving disputes with content creators and distributors.

Of course, on-demand distribution costs can be quite different depending on the delivery platform: retail stores renting DVDs or CDs; retail delivery by mail or internet delivery. 

Delivery Method	Direct Costs	Sample Cost (Per Episode or Movie)
Rental in Retail Stores	Manufacturing and duplication of discs, physical distribution to stores, store overhead, inventory management, disc replacement	$2.00 - $5.00
Postal Delivery	Disc manufacturing and duplication, postage costs, packaging materials, return postage or prepaid return envelopes	$3.00 - $6.00
On-demand Delivery (Per Episode)	Content acquisition, content preparation, content delivery infrastructure, payment processing, customer support	$0.50 - $1.50
Streaming Service	Content acquisition, content preparation, content delivery infrastructure, payment processing, customer support, marketing and promotion	$0.20 - $0.50

As a rule, bundled delivery using internet mechanisms offers the lowest overall delivery costs, compared to physical media. 

The point is that full a la carte access to individual titles is  impractical for many reasons. No single firm can afford to amass the full available catalog of created video content. Given the typical amount of video content people watch, 

By age group, people watch somewhere between three hours and 4.5 hours of content daily. 

18-24: 4 hours, 37 minutes

25-34: 3 hours, 54 minutes

35-44: 3 hours, 47 minutes

45-54: 3 hours, 31 minutes

55-64: 3 hours, 10 minutes

65+: 2 hours, 50 minutes

Assume the “typical” item is a 20-minute episode. That implies delivery of between nine and 14 episodes daily. Using a full on-demand model, that implies a cost of at least $3 to $9 daily, or about $90 to $270 per month. 

If you think about the pricing of streaming and on-demand services, it seems clear that consumers will not willingly pay such amounts for full a la carte access, even if it were possible. 

At the moment, declining take rates for linear video suggest that format is not preferred, even at typical costs of between $80 and $100 a month. The ultimate amount of spending for streaming alternatives is still developing, but many households already buy multiple subscriptions. 

The average U.S. household subscribes to 4.2 streaming services, up from 3.4 subscriptions in 2022, according to a 2023 survey by Leichtman Research Group. The survey also found that the average household spends $67 per month on streaming services, up from $55 in 2022.

Obviously, in an a la carte environment (were it possible), consumers would pay more than they presently do to watch video content delivered using the internet, the most-affordable platform. 

All of which explains why full a la carte buying (anything you want, when you want it) never happens. 

Instead, the business terrain centers on amalgamating enough content, at a low-enough monthly price, to satisfy enough customers so the business can survive. So far, most streaming services offering on-demand viewing have prices ranging from $5 to to $15 a month.

Streaming Service	Monthly Price (USD)
Netflix	9.99-19.99
Prime Video	8.99
Apple TV+	4.99
Hulu	7.99-14.99
HBO Max	14.99
Disney+	7.99
Paramount+	4.99-9.99
Peacock	4.99-9.99

Such prices do not seem sustainable, at such levels, financial reports suggest, as only Netflix actually seems to earn profits. 

The full issue is that the older linear TV model also is shrinking at a time when streaming investments are being made, so it actually is a combination of lower revenue and higher costs that are the problem for streaming providers. 

In other words, content producers are losing scale in a business where scale matters. Note especially the loss of advertising revenue for streaming models, compared to linear models. 

Element	Video streaming (%)	Linear video (%)
Revenue
Subscription fees	50-60	10-20
Advertising	20-30	70-80
TVOD (episode sales)	5-10	0
PPV (live event sales)	0-5	0
Merchandising	0-5	0
Cost
Content licensing	30-40	40-50
Production	10-20	0-10
Marketing	10-20	10-20
Technology	10-20	10-20

The point is that cost, convenience and simplicity have always driven the video business towards bundling, and that is unlikely to change in the streaming era of video delivery. 

To prosper, streaming services will have to gain greater scale, and that also means fewer but larger suppliers. It likely also means a reconstitution of the older cable TV bundled model of one flat price for lots of content. 

At first rather informally, then likely later formally, bundles of popular streaming services--”super bundles”--will be offered to consumers, where paying one price gives access to a few or several top services. 

In the early days, this will take the form of a “super bundler” aggregating two or more services into a package, often with other services such as mobile or internet access (home broadband) service. 

It’s coming. Consumer demand and supplier necessity will drive it. 

What's "Average" in Home Broadband?

As with most anything relating to the internet, “median” or “average” figures often do not reveal as much as we believe, since a relatively small percentage of heavy users exists with larger percentages of light users, along with lots of users somewhere in the middle. 

As a  broad generalization, we might characterize user behavior for any particular app, internet usage in general or data consumption as coming in three buckets.

Consumption	Percentage of users
Heavy	20%
Average	60%
Low	20%

According to data from OpenVault and Ookla, which track internet usage data from millions of broadband customers around the world, heavy users in the U.S. market are defined as those who consume more than 1.2 terabytes of data per month.

“Average” users consume between 300 gigabytes and 1.2 TB of data per month, while light users consume less than 300 GB of data per month. 

As an approximation, home broadband consumers also purchase different tiers of service based on their consumption profiles. The price variance generally is highest for the “heavy” users, where the cost of 1-Gbps service commonly ranges up to about $90 a month, with higher speeds of 2-Gbps, for example, up in the $110 to $125 per month range. 

Consumption	Speed tier	Monthly price
Heavy	2 Gbps or faster	$100-$150
Heavy	1 Gbps	$75-$100
Average	500 Mbps	$50-$75
Low	250 Mbps	$25-$50

Current pricing levels cites by big U.S. internet service providers tends to support the notion of “average” levels of demand with average prices for supplied service. 

AT&T Home Broadband ARPU	Q3'22	Q4'22	Q1'23	Q2'23	Q3'23	Y/Y Growth
Fiber	$62.62	$64.82	$65.92	$66.70	$68.21	8.93%
Non-Fiber	$54.80	$55.54	$56.00	$56.71	$60.43	10.27%
Total Broadband ARPU	$58.63	$60.31	$61.31	$62.26	$64.91	10.71%

Quarter	Comcast ARPU	Charter ARPU	Year-over-year growth rate
Q3 2022	$80.67	$66.10	N/A
Q4 2022	$82.34	$67.75	2.5%
Q1 2023	$83.91	$69.40	4.9%
Q2 2023	$85.48	$71.05	7.4%
Q3 2023	$87.05	$72.70	9.9%