How T-Mobile wants to use Quibi to keep its most valuable customers
Carriers shift from building their own media services to bundling as a way to reduce churn.
Quibi is about to launch with a massive T-Mobile partnership — but the carrier's Quibi promotion won't be a free for all. Instead, T-Mobile is specifically targeting some of its most valuable customers.
The telco is about to roll out a promotional partnership with Quibi, the mobile video service helmed by former HP CEO Meg Whitman and Hollywood mogul Jeffrey Katzenberg, early next month. However, Quibi won't be free to T-Mobile's entire customer base. Instead, it will be exclusive to subscribers who pay for two or more lines of postpaid service, Protocol has learned. T-Mobile's partnership with Quibi was first revealed last October, but eligibility details have yet to be officially announced. (Spokespeople for both companies declined to comment.)
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The carrier's Quibi promotion in many ways mirrors its partnership with Netflix, whose service it gives away to subscribers who pay for two or more lines. It's also indicative of an industry-wide trend. Instead of spending hundreds of millions of dollars on developing their own services, carriers increasingly team up with third-party streaming services to gain and retain subscribers in an increasingly competitive market.
A 20% bump for Disney+
Quibi is set to launch on April 6 with two plans: The service, which focuses on episodic content in 6- to 10-minute increments, will be available with preroll ads for $4.99 per month, or ad-free for $7.99. T-Mobile will give away ad-supported Quibi subscriptions to customers who are signed up for two or more lines of its most popular postpaid plans, including its line of Magenta and T-Mobile One plans, according to documents reviewed by Protocol. It's worth noting that the company may tweak parts of the deal or add additional terms and conditions ahead of its launch.
Eligible customers will have to sign up through the T-Mobile app, and will only be able to watch Quibi on one screen at a time. The company is set to officially announce the terms of this promotion in the coming weeks and is expected to continue to offer free Netflix plans to eligible subscribers as well.
T-Mobile isn't the only carrier teaming up with media services. Verizon became the launch partner of Disney+ last November, allowing all of its Unlimited subscribers to sign up for a free year of the service. That partnership has been a success for both sides: Former Disney CEO Bob Iger revealed in February that around 20% of the 26.5 million Disney+ subscribers had signed up via the carrier. Verizon, for its part, reported a 21% year-over-year growth in Q4 subscriber additions as a result of the promotion.
There are some significant differences between the two promotional partnerships, however. Verizon went wide, giving almost all of its postpaid subscribers access to Disney's service, while limiting access to 12 months. The latter inevitably resulted in outgoing T-Mobile CEO John Legere insulting Verizon on one of his company's earnings calls, claiming that Verizon's "vice president of copy and paste" had done a "terrible job" at re-creating T-Mobile's Netflix offer.
Wholesale rates, postpaid churn
Carriers and media services tend to keep financial details about their deals tightly under wraps, but past remarks from Netflix executives suggest that T-Mobile tends to pay industry-standard wholesale rates for these types of bundles. Back-of-the-envelope math would suggest that T-Mobile is paying roughly $4 per month, or close to $50 per year, per subscriber who signs up for Quibi.
The benefits of customers signing up for another line likely more than outweigh those costs. And while Quibi alone may not get too many customers to switch their family members to a new mobile carrier, it does add to the overall stickiness of the customer relationship. Plus, T-Mobile executives have said in the past that they are looking to add more media services.
Carriers have long spent $300 or more per subscriber on customer acquisition — money that the companies slowly earn back over time, making every month that a customer doesn't switch to a new provider more valuable than the previous one. Reducing churn is key to profitability for carriers, and streaming services are just the latest add-on in an industry known for heavily subsidizing phones, or giving away iPad Minis, to subscribers who commit to long-term contracts.
A lot less risky for carriers
The costs of this bundling strategy are significantly lower than any attempt to build its own media service to both retain subscribers and grow ad dollars, as Verizon learned the hard way with Go90. The failed mobile video service cost Verizon hundreds of millions of dollars without ever attracting a significant audience. "This is precisely why T-Mobile prefers to partner, rather than build, as the carrier takes on little financial commitment and essentially no performance risk," remarked Cowen Research's team of media analysts in a streaming-media report late last year.
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While bundled media services can represent an upside for telcos, it's still unclear what the long-term impact on media services will look like. Quibi will benefit from the additional marketing it gets from T-Mobile, and Verizon's success with Disney+ suggests that there is also the potential for significant revenue and subscriber growth, but Netflix executives have long cautioned investors to expect too much of a bump from bundled deals. Netflix's chief product officer recently told investors that bundles were still "a relatively small fraction" of the streamer's total customer acquisition.
Then-CFO David Wells was even more blunt in April 2018, five months after the company first teamed up with T-Mobile. Asked about the impact of these bundles, Wells said: "They're very immaterial today."