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Verizon Is Finally on Board With Bundling

Are you ready to bundle? Verizon (NYSE: VZ) is finally answering that with a definitive "Yes." The wireless carrier is offering customers on its high-end unlimited plans free subscriptions to Apple (NASDAQ: AAPL) Music. The move comes about six months after the company started offering six-month trials of the music-streaming service to new customers, so the timing makes sense.

Verizon now joins its biggest competitors in bundling a media subscription service along with its wireless service. T-Mobile (NASDAQ: TMUS), Sprint (NYSE: S), and AT&T (NYSE: T) offer video subscription services to their most valuable subscribers. Likewise, Verizon's Apple Music offer incentivizes customers to pay for higher-priced plans and could increase retention by increasing switching costs for customers.

Image source: Verizon Communications.

Standing out from the crowd

Verizon's decision to partner with Apple Music is notable for a couple reasons. First of all, its competitors all chose to focus on video streaming services. T-Mobile has Netflix, Sprint has Hulu, and AT&T offers customers one of several options, including its own HBO Now service. But by coming late to the party, Verizon missed the opportunity to partner with the most popular video streaming services.

What's more, Verizon Wireless President Ronan Dunne noted at the Citi TMF West Conference that, "Much of the video, people already have access to." Indeed, there are already 58 million U.S. Netflix subscribers and 25 million Hulu subscribers. HBO Now surpassed 5 million subscribers nearly a year ago, and another 49 million or so have access to HBO and Cinemax's streaming services via their traditional cable subscriptions.

Partnering with Apple Music gives Verizon access to the largest and fastest-growing subscription music-streaming service in the U.S. As more people consider subscribing to Apple Music, Verizon's bundle becomes more attractive. T-Mobile experienced better-than-expected subscriber growth in 2018, its first year of bundling Netflix. Management hasn't given specifics on how the bundle impacted gross additions or subscriber retention, but it has said the numbers are meaningful.

Dunne says roughly 20% of new customers have taken Verizon's Apple Music trial offer over the last six months. Verizon may be able to convert many of those into higher-tier unlimited plan subscribers who were considering keeping Apple Music anyway. That number ought to continue climbing as Apple Music increases in popularity.

Bundling other Verizon assets

Beyond Verizon's partnership with Apple, there's an opportunity for Verizon to leverage its existing portfolio of assets from Verizon Media to bring more premium content to its wireless customers. "How do we take the assets in the business that is Verizon Media Group and the real interest groups in that, and how do we give even more value to Verizon customers from those?" Dunne asked rhetorically onstage at the conference.

Verizon Media has valuable partnerships with sports leagues and content creators. Yahoo! Finance "is as big as Bloomberg" Dunne says, and it creates its own video content daily.

Packaging all of Verizon Media's content into a nice mobile package is challenging. The company's go90 service failed to catch on despite big investments in sports and entertainment content and a substantial marketing budget. Verizon seems intent on making use of its digital-media acquisitions, however, and offering a more premium content service exclusively to subscribers might be the way to do it.

AT&T notably offers all of its unlimited wireless plan subscribers free access to Watch TV, a linear TV streaming service that's heavy on Time Warner content. Verizon might be able to put together a similar offering with its own content, as another way to retain subscribers.

Bundling a media subscription has become table stakes for wireless carriers. Verizon might be late to the game, but it's strategy should get results comparable with its competitors in an increasingly difficult environment to attract new subscribers.

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Adam Levy owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.

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