Wireless Carriers Strip Content from Cable

Jon Markman

Cable TV was bleeding subscribers before the pandemic. Now wireless carriers are making sure the pain only increases as they begin to recreate content bundles around streaming media.

Verizon ((VZ) -Get Report) last week announced an exclusive content deal with Disney ((DIS) -Get Report) and Apple (AAPL) that will bring their on-demand streaming media networks to wireless and internet customers.

It’s a game-changer for media sales, and distribution networks.

Verizon has 94 million customers, stretching across the wireless, internet and land line business segments. As of August 20, customers with an eligible $45 wireless plan will be able to stream Disney+, Hulu, and ESPN+ for no additional cost. They will also get either a six-month subscription to Apple Music, or an indefinitely long plan, depending on their Verizon contract.

The rationale behind offering so much free content is stickiness. Verizon managers know that customers signed up for streaming video and music services are unlikely to leave for other carriers, especially when they can’t get the services as free add-ons elsewhere.

Verizon managers first found success with the strategy using so-called Mix and Match TV plans. Internet customers can choose YouTube TV, a slick live and on demand TV service, run by Google. The packages include 125, 300 or 425 channel choices. After 60 days, Verizon software offers customers the option to pay for only the channels they actually watch.

Because the plans are sold independent of the wireless and internet packages, customers know exactly what they’re paying for. Built-in personal DVR services make recording all of your favorite shows a snap. That business is way more customer friendly than traditional cable TV packages.

Mix and Match, and the streaming packages from Disney and Apple give customers a ton of content, all on-demand, at a reasonable price.

The changes couldn’t have come at a worse time for pay TV operators.

The satellite and cable TV sector lost 6 million customers in 2019, a 7% year-over-year decline. Variety reported in February businesses lost a staggering 1.5 million subscribers in the last quarter alone.

Then the pandemic hit. Sports leagues stopped broadcasting live content. Media consumption went online.

AT&T Corp. (T), in April, announced a $430 million earnings hit tied to COVID-19, according to a report in the Hollywood Reporter. The pay TV businesses lost 138,000 subscribers.

The takeaway for investors is clear: The way media is bought and consumed has changed, perhaps forever. The days of cable operators being able to coerce customers into taking channels they don’t want, in order to get the ones they want, like ESPN, are over.

Verizon’s offering provide price clarity. They give customers what they want.

Media companies like Disney and Apple gain access to big distribution channels. It’s an opportunity to get their content in front of more customers to build network effects. Platforms become more valuable when your friends are there, too.

Longer-term, Disney shares are a buy. Sooner than later, the business is going to be valued less like a theme park and leisure operator, and more like Netflix, a true technology business.

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