Deal me in: Is an OTT price war ahead?

Just what the hotly competitive streaming video market needed: a price war.

There’s no open declaration of hostilities just yet, but an offer spotted recently from Walt Disney Co. suggests there’s willingness on the part of the category’s fastest-growing player to leverage one of the “3 Ps” of classic marketing theory: price.

A promotion circulating on social media outlets invites Hulu SVOD subscribers to add ESPN+, and Disney+ for a total bundle price of $9.99/mo. That’s 33% less than the $14.99/mo rack rate for HBO Max, $4/mo below Netflix’s “Standard” U.S. plan, and also a $4/mo discount from the $13.99/mo price normally charged for the three-service Disney Bundle.

There are limits. The deal expires at the end of July, and the discounted price lasts for only three months. Still, the promotion caught our eye for three reasons:

It’s cheap. Paying $9.99/mo for three premium services looks like a bargain by any measure. Normally, the Disney Bundle sells for $13.99/mo, a price point that by itself is aggressive versus peer services. But by offering Hulu subscribers the chance to add two companion services for an incremental price of $4/mo, Disney is twisting the screws tighter, likely leaving rivals uncomfortable.

It’s a bundle. The “great rebundling” conceit has been talked about for a while now, but this month’s promo further supports the notion that somewhere, somebody is going to lead the parade toward a new commingling of multiple video services under a single billing relationship. With this promotion, despite the limited duration, Disney is signaling its faith in the underlying economics of the bundle.

It’s a hybrid. Two of the three services involved here (Hulu’s ad-inclusive SVOD service, and ESPN+) carry advertising. One, Disney+, does not. So in a sense, by commingling the two models into one do-it-all package, Disney has diluted somewhat the distinctions between ad-inclusive and ad-free variations of streaming services. At the same time, from an economic standpoint – and this is an important ingredient in Disney’s willingness to tamp down the rate – the advertising component gives Disney needed leverage. We’ve pointed out before that monthly ARPU for Hulu’s SVOD service was $12.08/mo in the first quarter of 2021 — well above the $5.99/mo rack rate for the most popular Hulu iteration. Disney clearly recognizes that a successful advertising business gives it leeway Netflix and other subscription-dependent services lack.

Next? Pricing aggressiveness has been a hallmark of Disney’s streaming video pursuit. In January of 2019, the monthly rate for Hulu did something highly unusual in the sector: It went down, with the price reduced to $5.99 from $7.99. The fact that the reduction came just days after Netflix announced a price hike was hardly coincidental. In that case, the lift from advertising revenue gave Disney latitude to make the trade-off. It’s also worth recounting that when Disney launched Disney+ in November of 2019, it applied a surprisingly affordable rate of $6.99/mo for a content-rich, brand-beloved service that probably could have done nearly just as well at a higher price. In this case, we believe Disney wanted to put pressure on WarnerMedia, which faced the trying circumstance of having to launch HBO Max about six months later at a higher ($15/mo) price point, owing partly to contractual agreements with HBO distributors. The Summer of ’21 promotion for the Disney Bundle won’t go down in history as a seminal event, but at the least, Disney’s willingness to sacrifice operating margin for share growth is a warning to other streamers: Apply premium pricing at your peril.

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