In brief: Costco Wholesale is reported to either be in the process of launching its own video streaming service, or had planned to and has since abandoned those plans due to a breakdown in talks with the companies Costco had hoped to partner with. The rumored streaming service is understood to have been based around the Amazon Prime model where Costco would provide the video service to some of its existing members as a free premium benefit of having a membership. As well as potentially acting as a motivator for members on a lower membership tier to upgrade to a higher one. The details on this come from a new report which credits more than one person with “direct knowledge of the discussions.” In response to the report Costco has denied plans to release a video streaming service.
Background: Costco, like Amazon, is heavily reliant on its membership model which provides various benefits in exchange for a yearly fee. Although the two are somewhat different with Costco primarily looking to drive down the cost of purchases to customers at the point of sale, while Amazon bundles various services together to create a more complete and value-added package to support its fundamental two-day free shipping feature. One of those related Amazon services is access to on-demand video content through Prime Video. According to the report, Costco has been looking at ways in which it can also offer a video streaming service to its members, thereby also adding value to its membership in a similar way. Although this is understood to not be a service that will/would have been made available to all of Costco's customers, but instead those who are signed up to the company’s top membership tier - known as "Executive members." A tier which is already afforded additional perks compared to the Goldstar level, such as 2-percent back on Costco purchases. Incidentally, customers in this Executive tier pay a fee that’s directly comparable to the full cost of a Prime membership.
The confusion behind whether Costco is, or was, working on offering video streaming as a membership perk stems from the suggestion that talks surrounding the implementation of the service have since broken down. The report specifically states that as a means to keeps costs low, Costco was looking to partner with an existing video provider in a similar way to how Verizon is now drawing on a partnership with YouTube TV and Apple TV to pad out its so-called 5G all-in package. However, it’s reported that agreeing financial terms had proved more difficult than expected for Costco leading to the the breakdown between the retailer and at least one of the companies. Therefore, whether Costco still plans to rollout a video streaming service now likely depends on whether talks with the second company have also broken down in a similar fashion, or whether Costco has since found a suitable replacement - or still plans to. In response to the original report, when asked whether it will offer a video streaming service to its members, Costco said “we currently have no intention.”
Impact: There are different variables in play here. On the one hand there is the retailer element where this acts as a reflection of how companies like Costco need to continue to find ways to justify up-front costs involved with their services. While some of the pressure on Costco can likely be attributed to Amazon, largely believed to have negatively impacted on all retailers to some degree, Amazon itself has also needed to find ways to further add value to its own membership. Especially considering that Amazon recently increased the cost of a Prime membership from $99 per year t0 $119. A price increase which Amazon explained, paradoxically, was a result of having to continue to pay its own rising costs associated with offering a membership product in the first place.
From another perspective, this further adds more evidence to just how important streaming services are becoming and not just to existing video service providers, but also to companies who are less traditionally thought of as video-related. With those less-traditional companies also looking to get in on the action before the streaming market reaches full maturity. For example, while video-specific brands are preoccupied with migrating their offerings over to a digital and on-demand footing, a number of tech companies have also looked to enter the market. Google has with its YouTube TV option which provides access to live TV and on-demand content, while Facebook is building out its Facebook Watch service that provides more of a curated video product. Then there is Apple with its Apple TV platform, and T-Mobile who is banking on its Layer3 TV purchase to offer a mobile-first video service solution. While these are still tech companies, and therefore closer in proximity to the video streaming industry than the likes of Costco, this would not be the first time -- Amazon aside -- a major retailer has looked to video as a new avenue for revenue. As Walmart, arguably one of the biggest bricks-and-mortar retailers in the US, recently struck a deal with Metro-Goldwyn-Mayer (MGM) to provide its customers with access to original content through its Vudu service - Walmart acquired Vudu back in 2010 highlighting how far back this particular retailer saw the value in online video.
Even those already highly invested in video streaming do not seem to be totally content with their existing options, as Amazon is in the process of building out a completely different video service to its Prime Video product which is due to arrive as an IMDb-branded option and expected to be positioned as a free-to-the-consumer product which relies on ad revenue for self-sufficiency. Likewise, AT&T who not only provides comprehensive live TV and video on demand content through its DIRECTV NOW service, as well as a reduced ‘lite’ product through its budget-friendly WatchTV service, is also not fully finished with finding new ways to offer video to consumers. With AT&T recently confirming it’s working on a new WarnerMedia-first video streaming service that’s due to arrive in the fourth quarter of next year. If Costco also plans to offer a new streaming solution, and while it will find itself entering a continually busy market, the benefit model used will likely mean it gains some traction - at the very least with its existing membership base.