Freebies are the key hook in new ‘streaming wars’

If you make it free, will they come?

Apple, Disney and AT&T’s WarnerMedia want to jump-start their challenges to Netflix by offering freebies and deep discounts on emerging streaming plans.

That includes a free year of Apple TV Plus for customers of new Apple devices and a free year of Disney Plus to higher-tier Verizon customers. Some existing HBO subscribers will also get the supercharged version, HBO Max, at no additional cost.

Experts say these services can worry later about holding onto customers — perhaps by offering must-see shows they can not get anywhere else or tying discounts to other services that are difficult to drop.

“Next year is a race to aggregate consumers,” said Kevin Westcott, who heads Deloitte’s United States telecommunication, media and entertainment consulting business. “The first war is getting them to sign up for a service. The second war is retaining them.”

The new services have to attract users with marketing blitzes and the promise of original shows and movies, then build a big enough library of old favorites to help keep them. Already, HBO Max will have “Friends ” exclusively, and Disney is taking back its older movies from Netflix.

A lot of shows and movies will not be available at launch, but will be added over time. Free helps in the meantime.

Netflix has spent years building up its 158 million subscribers worldwide. Hulu has 28 million. The new players want to ramp up subscribers quickly to show they can compete.

So the services have launched the digital equivalent of the old cable promos: lure you in with discounted rates, then jack up the price after a year or two. But digital customers have more choices than cable customers of yore so a big question is whether they will stick around.

Apple TV Plus debuts Friday for $5 a month with just nine shows and a few more coming soon. It is already cheaper than the $13 a month Netflix charges for its most popular plan. Buyers of any new iPhone, iPad, Apple TV, Mac or iPod Touch get a year for free. That suggests a market of 40 million customers, Wedbush analyst Dan Ives said.

Disney Plus, which arrives Nov. 12, is also cheaper than Netflix at $7 a month. Disney struck a deal with Verizon to give customers of all unlimited wireless plans and some home-internet customers a free year. Members of Disney’s free D23 fan club were also eligible to buy three years of Disney Plus service upfront for the price of two years. Disney is targeting 60 million to 90 million worldwide by 2024.

AT&T’s HBO Max, which launches in May for $15 a month, is the most expensive of the new services. That could make it tough for AT&T to reach its goal of 50 million U.S. customers and 75 million to 90 million worldwide by 2025.

But AT&T will make the service free for about 10 million existing HBO subscribers, or about a third of its U.S. subscribers. HBO Max will also be included with AT&T’s higher-tier wireless and broadband offerings.

Comcast’s Peacock service will be free for many of its own cable and internet customers. The regular price has not been announced yet. The service launches next spring.

“I don’t think customers are going to have to make difficult choices about cutting one in order to add another for the first few years,” said MoffettNathanson Research’s Craig Moffett.

But companies can not run the services at a loss forever, and when discounts end and prices rise, customers may flee. After all, the services add up fast, and signing up to multiple ones could end up costing as much as the cable packages people are ditching for streaming.

There is a lesson to be drawn from the latest TV-industry attempt to counter cord-cutting. Cable-like online packages like Sling TV and YouTube TV have ended discounts or raised prices, causing customers to flee and new sign-ups to slow down. Sony announced Tuesday that it will quit offering PlayStation Vue, one of the first to challenge traditional TV packages.

Even the dominant player is not immune. Netflix has raised prices slowly, which helped shield it from price shock, but its latest small increase has hurt customer growth.

Westcott, the Deloitte consultant, compared the streaming promotions to efforts to lure wireless customers from competing companies.

T-Mobile has long offered Netflix free to many customers. Verizon includes six free months of Apple Music with some of its unlimited plans. Many offer other deals like paying off your phone early or getting a phone for free if you switch.

“They were constantly looking for ways to steal you off other players,” he said.

How will these services keep users once they have reeled them in?

The companies can constantly refresh their services with new shows and movies, Diffusion Group president Michael Greeson said.

Cathy Yao, an analyst at Diamond Hill Capital Management, also said companies can try to create “stickiness” by bundling the services with other products and services so a customer is less inclined to unsubscribe.

For example, including HBO Max with wireless and broadband services will make consumers more likely to stick around for all three, Yao said. It is similar to how Amazon packages its streaming service with its $119-a-year Prime loyalty program.

Ultimately, content will be king, experts say. The services are investing billions into creating new shows and building up their libraries to find or create the next “Stranger Things”.

Apple TV Plus inked high-profile deals with Oprah Winfrey, Reese Witherspoon and Jennifer Aniston. Comcast’s NBCUniversal reportedly paid $500 million to take back “The Office”, and Netflix reportedly paid even more to claim global rights to “Seinfeld”.

“The weapon of choice for retention is exclusive programming,” said Peter Csathy, founder of Creatv and an industry consultant. “All of these behemoths are investing billions of dollars in originals with the hope of finding the next ‘Game of Thrones’ that becomes ‘Must See TV.'” IB/JB

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