Disney (NYSE:DIS) launched Disney+ in the United States in November 2019 and partnered with Verizon (NYSE:VZ) to offer its subscribers a free year of the streaming service. A year later, most of those subscribers have decided it's a service worth paying for and renewed on their own.
More than two-thirds of the initial free trial subscribers kept Disney+, either through paying more on their Verizon bill or upgrading their phone plan to one of Verizon's new unlimited plans that includes Disney+. That's a boost to both companies' businesses.
Verizon has a similar promotion to last year's deal for Disney+ with Discovery (NASDAQ:DISCA) and its new streaming service Discovery+. And it may be looking for more partners.
The big impacts on Verizon's business
Verizon's management says its media partnerships are a benefit to both its subscriber retention rate and its bottom line. While Verizon does have to foot the bill for Disney's streaming service, it can likely charge more than it's paying the media company, either through direct billing or in its bundled pricing on its new unlimited plans.
Verizon saw its postpaid phone subscriber churn rate fall 7 basis points year over year to 0.76%. While some of that decline is likely the impact of a low-switching environment during the pandemic, management says the bundled media offering makes its product stand out versus the competition. "Our offerings are so distinct and different than anybody else in the market, where they can go to the unlimited premium together with Discovery+ or Disney+," CEO Hans Vesterberg said during Verizon's fourth-quarter earnings call. "I think nobody else has those type of things in the market."
To be fair, competitors AT&T (NYSE:T) and T-Mobile (NASDAQ:TMUS) do offer their own media bundles. AT&T gives its top subscribers access to HBO Max. T-Mobile has a partnership with Netflix for a discount on the service if paid through a customer's T-Mobile bill. Both also saw improvements in churn last quarter.
Meanwhile, Verizon saw its average revenue per account rise by 1.8% in the fourth quarter. That's offset slightly by a minuscule increase in lines per account. Its EBITDA margin on its consumer wireless business expanded by 1.6 percentage points. By comparison, AT&T saw its postpaid phone ARPU decrease in the fourth quarter, and its EBITDA margin contracted by 5 percentage points.
A noticeable improvement in churn without discounting its service is good for Verizon's bottom line. The bundle can help defend its subscriber base against T-Mobile, which is aggressively building out its 5G network and working to attract customers.
Great news for Disney
The strong retention among Verizon customers bodes well for Disney. Over 5 million Verizon customers signed up for the Disney+ trial in the first couple months of Disney+'s launch. Verizon's management suggests over 3.5 million are still paid members. That likely represents more than 10% of Disney+'s U.S. subscriber base. That's a healthy piece of the direct-to-consumer business that's likely sticking around longer than the average subscriber at this point due to bundling the service with their wireless provider.
Moreover, Verizon isn't Disney's only partner. The media company partnered with various telecom companies all over the world to launch Disney+ in certain regions. For example, it partnered with Canal Plus in France, Sky in the U.K. and Ireland, Cablevision in Argentina, and Izzi in Mexico, among others. If those produce similar results to Verizon's promotion, it will bolster Disney's subscriber base. That's especially true as it starts to raise prices internationally with the addition of Star to Disney+.
Verizon isn't stopping with Disney+. It added a free year of Discovery+ when the new streaming service launched earlier this month. The Verizon partnership could quickly add millions of subscribers to Discovery+. That's key for Discovery, as it's coming late to the game after several high-profile launches from competing services last year.
To be clear, Discovery's brands may not have the same appeal to consumers as Disney's brands. For Verizon, it could be a greater factor in retaining subscribers than it is in attracting new ones. As for Discovery, it doesn't need as big of a subscriber base as Disney+ to make the service profitable since its content expenditures are so much lower.
Verizon's management said it will continue to explore potential partnerships. "We're not going to have 100 different types of offerings. But the Discovery+, the Disney+, they are sort of super-A brands that we want to work with," Vestberg said on the call. "We will look for more of these to see that they're fitting into our customer base, that they like it and are willing both to upgrade and migrate. So, we'll continue with that."
That comment also suggests Discovery+ could get the ax from Verizon if it's not generating a meaningful difference in retention and upgrades. Verizon scored a big win with Disney+, and it's looking to repeat the process.