Verizon (VZ -1.07%) recently announced a new promotion offering its higher-tier FiOS internet customers up to 12 months of Disney's (DIS -1.08%) Hulu for free. That's in addition to the 12 months of Disney+ all Verizon home-internet customers were provided the opportunity to receive.

The move is just the first of what's likely to be many made by cable and internet companies. AT&T (T -0.16%) even explicitly told investors part of its go-to-market strategy for HBO Max is partnering with internet providers to bundle the streaming service with home internet. Comcast (CMCSA -0.15%) is trying to partner with other pay-TV providers to distribute Peacock, but Comcast's own internet-only subscribers also get free access.

Cable companies used to offer free HBO and Cinemax to get customers to sign up or stay subscribed to their pay-TV bundle. Now they're using Disney+ and Hulu. 

Disney+ logo.

Image source: Walt Disney.

Video is just another add-on

For a company like Comcast, video service -- the standard cable bundle -- is just another add-on for a profitable internet customer. The goal isn't to make a profit directly from the video subscriptions, it's to increase the retention rate for internet subscribers (where the real profit's made).

That's why Comcast is more than willing to include access to Peacock's premium tier for all of its internet subscribers -- it expects to increase subscriber retention. And it's also why it's willing to let hundreds of thousands of video subscribers go if they don't want the video service anymore.

It's actually far easier and less expensive for internet service providers to bundle a streaming service like Disney+ than a full package of live TV channels. There's no installation expense and no cost to deliver the service. The provider simply pays a negotiated rate to the streaming service, typically less than retail price. Put another way, the cost of a year of Disney+ is likely far less than the cost of sending a truck to install video service at someone's home.

While bundling the service may start as a customer acquisition expense (a free year of Disney+ costs Verizon something), it later becomes a subscriber retention mechanism (customers have to cancel both their internet and streaming subscription to end service). 

Disney will become the bundling option of choice

As more internet service providers look to bundle streaming services with their subscriptions instead of full-fledged video packages, Disney is more likely to win deals than any other competitor.

First of all, Disney has a history of working with companies to distribute its content. That puts it ahead of other big-name competitors in the space like Netflix (NFLX -1.51%). And while Netflix has forged more and more partnerships over the years, Disney's existing relationships with those companies for its television network distribution put it at a massive advantage in negotiations. 

Additionally, Disney's still just getting started growing. Netflix already has over 60 million subscribers in the U.S. Disney+ has around half that number. As such, Disney's likely to pursue partnerships more aggressively in order to scale its subscriber base quickly.

Disney also stands in a better position than HBO Max or Peacock. Since Disney isn't owned by a company that's also competing for internet subscribers, other companies are more likely to partner with it instead of AT&T or Comcast. 

Disney offers several other advantages as well, including lower pricing (less than $7 per month), increased flexibility (Hulu and Disney+ are separate services), and broad appeal across several demographics.

Disney's merely expanding on its deal with Verizon for now, but investors should look for the media company to forge partnerships with other internet providers in the near future.