Chasing huge subscriber goals, streamers give it away for free

Streaming companies are under so much pressure to juice their subscriber numbers that they're giving away access to subscribers for free on a trial basis, with the hope that they one day can get users to actually pay.

Why it matters: Subscription streaming providers have set lofty subscriber goals over the next few years. But without the distribution prowess of a wholesaler, like a telecom company, they won't be able to hit those numbers.

The big picture: It's basically the same economics as cable all over again, where networks spend billions of dollars to produce or buy high-quality content, only then to rely on companies with direct customer relationships for distribution.

Driving the news: WarnerMedia boss John Stankey told Reuters in an interview Friday that the company will be offering HBO Max at no extra charge to 10 million AT&T Pay-TV and wireless customers, who are also HBO subscribers.

Other streaming companies are following a similar model:

• Disney+ will be available to Verizon customers with unlimited wireless plans for free for one year, Disney and Verizon announced Tuesday.
• Peacock will be offered to cable customers from its parent company Comcast for free when it launches next April. NBCUniversal CEO Steve Burke said Monday that Peacock will be bundled into Comcast's streaming platform, Flex.
• Quibi announced earlier this month that it has struck a distribution deal with T-Mobile. Details at this point are scant.
• Amazon Prime Video is offered to subscribers as a part of Amazon's broader Amazon Prime subscription.
• Apple TV+ will be provided for one year for free to new hardware customers.

Flashback: Netflix was the first streamer to broker a deal like this with a telecom provider when it said in late 2017 that its app would be distributed for free to millions of T-Mobile customers. Earlier this year, however, T-Mobile said it would pass off Netflix's subscription rate hike to consumers, forcing them to pay $2 monthly for the access.

By the numbers: While these companies are investing heavily in marketing, marketing alone won't be able to get them to their subscriber targets.

• Disney said earlier this year it hopes to get 60-90 million customers signed up by 2024.
• HBO Max hopes to reach 50 million U.S. subscribers in its first five years after launching, AT&T executives said on its third quarter earnings call Monday. It hopes to reach 80 million global subscribers by 2025.
• Peacock will get at least 20 million subscribers off the bat, who will be able to access the streaming service via their Pay-TV subscription through Comcast.
• Netflix currently has more than 60 million subscribers in the U.S. and nearly 100 million globally. Analysts estimate it will need at least 300 million global subscribers paying increased rates in order for the streamer to be profitable.
• Quibi, in a best-case scenario, is hoping to reach up to 70 million subscribers in five years, per Digiday.

Be smart: The goal for most of these mega-streamers is to get users to buy some other, more lucrative service. Apple wants to give users video so they'll buy more phones. Amazon wants to give users video so they'll buy more goods online.

• For telecom companies like Comcast and AT&T, the goal is to give customers more streaming options so that they can maintain customer relationships, without having them totally eat their existing Pay-TV and mobile businesses.

The bottom line: The average U.S. consumer is only willing to pay $42 for streaming services, per Magid Associates, which means that if competing streamers all want to reach a significant portion of the American population in the next few years, many will have to give it to consumers for free.

• After that, it will be on them to do whatever it takes to prevent subscribers from "churning" or canceling their service for another.
• "Launch Marketing may get people to sample in November but customers don’t always stay even if they are satisfied," says Jill Rosengard Hill, EVP at Magid. A quarter of users surveyed in Magid's latest study say they will cancel in the first 30 days.

Go deeper: Streaming's cancel culture problem