We are in the age of the great rebundling, when firms
use packages of services as a way to increase their scale advantage and
thus deepen the moat around their businesses.
In
music, the story is even starker than in television. At one time,
consumers used to buy a collection of songs — on vinyl, cassette and
then compact disc. It was possible to buy a single song or two in these
formats, but the internet facilitated more and more people downloading
individual tracks.
Yet, today, there is an
inexorable consumer shift to all-you-can-eat bundles of music. Already
more than 60 million people pay for Spotify, Apple Music and others.
These music bundles will increasingly be combined with other services as
well to build competitive advantage. This newspaper currently includes
Spotify with certain new subscriptions.
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Bundling has always worked well for products for which consumers have
widely varying tastes and willingness to pay. The magic of bundle
economics allows consumers to get more for less, while also maximizing
revenue for the provider.
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First, the near-zero marginal cost of distribution makes all-you-can-eat
packages compelling. Even heavy users of streaming services can
potentially be profitable customers if the underlying economics of
rights payments are well managed.
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But investors often forget that network effects are just a subset of
scale advantages. Superior scale is what protects most businesses from
competition. It would be hard to start a business to take on Coca-Cola
because of its size advantage — especially in local bottling,
distribution and marketing.
https://mobile.nytimes.com/2017/02/14/business/dealbook/bundling-online-services.html?ref=dealbook&_r=0&referer=