The 200,000 subscribers Netflix (NFLX -0.63%) lost in the first quarter of 2022 led many investors to question the fate of the streaming giant. The streaming market has undergone a vast transformation in the last couple of years, with expanded choices pushing many consumers toward the best entertainment for the best price.
Amid fierce competition in the streaming market, a few companies have found a way to lock consumers into their subscriptions by bundling a streaming subscription with other useful services. Attractive bundles could be the way forward for streaming platforms looking to gain an edge over the competition.
Bundles lock people in
Apple (AAPL -0.35%) and Amazon (AMZN 3.43%) are both skillfully using bundling to encourage consumers to stay subscribed for the long haul.
Amazon's streaming service, Prime Video, acts as an opportunity for the company to entice consumers to buy into its lucrative Prime membership. Once those subscribers arrive, they often try out -- and grow to depend on -- other services in the bundle. Prime Video has historically operated at a loss, but the number of Prime subscribers it helps retain seems worth every penny.
Amazon founder and former CEO Jeff Bezos said in a letter to shareholders in April 2021 that the company had "more than 200 million Prime members worldwide," doubling the number from 2018 when the company reported 100 million subscribers. In July 2021, an estimated 151 million Prime memberships came from the U.S., according to eMarketer -- 58% of the country's population. Analysts project that number to grow to at least 168 million by 2025.
Meanwhile, Apple's bundled services similarly create an excellent opportunity for consumers to try out the company's alternative offerings while bringing people further into the Apple ecosystem. Although Amazon uses its streaming service to fuel Prime membership growth, Apple TV+ has been designed to provide its parent company with another revenue stream.
Services are swiftly becoming a bigger part of Apple's business thanks to their high margins. In Q1 2022, the company's costs to make physical products like iPhones and Mac computers ate up 63% of that division's net sales. However, when it came to services, their cost made up 27% of sales.
Bundles offer more value
With the cost of living rising globally, many consumers are cutting discretionary spending, making it hard for streaming services to retain subscribers. A recent study showed that 33% of people plan to add a new TV subscription in the next six months, while 30% intend to drop one.
Apple debuted its streaming service Apple TV+ in November 2019 for the comparatively low monthly price of $4.99. The company also offered several options to get a free membership for up to a year with the purchase of eligible Apple products. TV+ is just one of many services Apple sells, including Music, Arcade, Fitness+, News+, and iCloud+.
The cheapest of Apple's three bundles offers $14.95 for one person to access TV+ (4K, six streams), Music (90 million+ songs), Arcade, and 50GB of iCloud storage. Alternatively, Netflix's closest-priced tier is a $15.99 subscription that offers two simultaneous HD streams and access to the recently added Netflix Games, a currently small library of mobile games that the company plans to grow.
Amazon's Prime membership charges $14.99/month or $139/year ($11.58/month) for free two-day (or faster) expedited shipping, Prime Video, Amazon Music, Prime Gaming, and Amazon Photos (unlimited cloud storage), among other benefits.
While individual services such as Netflix and HBO Max arguably offer a wider variety of content, the other services provided in Apple and Amazon's bundles offer more value. For households that already subscribe to streaming video and streaming music, combining these offerings with one low price looks far more attractive than paying for them separately.
How can Netflix cash in on bundles?
Netflix's venture into gaming suggests it's aware of bundling's advantages. The company acquired game developers Night School Studio in September 2021, and both Next Games and Boss Fight in March 2022. Although Netflix Games is still in its early stages, successfully growing the service would add a second pillar to the company's existing offerings.
There have also been rumors that Netflix may buy streaming company Roku. The latter company's hardware and software could open the doors for Netflix to offer even more services to its members, making it even harder for consumers to walk away.
Prospective streaming service investors should monitor how the parent companies of services such as Netflix, Paramount, HBO Max, Peacock, and others are combining their services into one neat package for consumers. Any acquisitions that could diversify a company's offerings might also indicate the potential for a lucrative bundle down the road.
