Verizon (NYSE:VZ) customers can now stream all things Disney (NYSE:DIS). The two companies are building on their existing relationship to offer customers of Verizon's new unlimited plans access to all three Disney streaming services -- Disney+, Hulu, and ESPN+ -- at no additional charge. The company previously offered select customers a free year of Disney+; the new plan includes all three services for the life of the plan, and it's priced the same as Verizon's old plan.
The move has the potential to provide a significant boost to Disney. The company disclosed that about 20% of its early Disney+ subscribers -- over 5 million total -- signed up through the Verizon promotion through the first three months of the service. Adding Hulu and ESPN+ to the bundle and making it permanent has the potential to drive even more adoption for all three streaming services.
Building out the bundle
Disney has over 100 million subscribers across its three streaming services (although some of those subscribers are double or triple counted). Still, the importance of Verizon's bundle with Disney shouldn't be understated.
First, there's still considerable room to build out the bundle. Disney currently offers all three services for a combined $12.99 per month, saving subscribers about $5 per month. Getting more bundled subscribers ought to lead to higher retention rates; even more so when the whole group is bundled as part of a customer's Verizon plan.
Disney stands to benefit considerably from greater adoption of Hulu and ESPN+ because of the ad-supported side of those apps. Hulu's average revenue per user is historically higher than its ad-free price, although it dipped below that mark last quarter in a weak advertising environment. While Disney is likely offering Verizon a discount on the bundle, it'll probably keep all of the ad revenue from those subscribers.
Retention remains a big question mark for Disney
Making the Disney+ promotion permanent for Verizon will help bolster Disney's subscriber retention for its flagship service. While Disney has seen a meteoric rise in subscribers straight out of the gate, it's yet to be truly tested in keeping its subscribers.
Many subscribers signed up for Disney's full-year pricing, which offers a discount compared to paying month-to-month. But when their year is up in November or December, Disney will have to convince them to stay subscribed. With a sparse content slate, in part due to production shutdowns, Disney may face a challenge with subscriber retention.
What's in it for Verizon?
Making Disney a permanent fixture in Verizon's wireless plan could also improve its own subscriber retention. While Verizon boasts lower churn rates than its competitors for its postpaid wireless customers, it's the only one that's gone without bundling a video service. Bundles have historically done well for wireless carriers in improving subscriber retention. T-mobile (NASDAQ:TMUS) says its partnership with Netflix (NASDAQ:NFLX) has had a positive impact. So, it could add an extra boost to Verizon's lead.
The inclusion of Disney+, Hulu, and ESPN+ in its plan could also draw in subscribers or convince subscribers to pay for a more expensive plan. If a customer already subscribes to Hulu, for example, as over 30 million Americans do, Verizon's plan may look more appealing than competitors. That said, no streaming service is as popular as Netflix, so it'll be hard to pull away T-Mobile customers.
Lastly, it's important to note that Verizon isn't simply automatically upgrading customers on old plans that qualified for a free year of Disney+. The new bundle is part of a new plan. This gives the telecom company an excuse to reach out to those customers and offer them a new plan and potentially upgrade their devices and lock them into Verizon for longer.
Verizon certainly gets a lot of benefits out of the new deal with Disney, and Disney's adding a lot of stability to its streaming subscription business and likely picking up quite a few new subscribers over the next few months as Verizon pushes its new plans.