Disney, AT&T, Apple… all are planning to launch their video streaming service soon when others like Amazon are already on the market. Given the success of Netflix, they want their piece of the pie. But a competitor already present has some interesting assets: Hulu, who has chosen a different business model, may have a few surprises in store…
Hulu, which entered the market in 2007, was until recently owned by Disney, Comcast and AT&T, which has just sold its 9.5% stake to the platform for $1.43 billion in order to satisfy its own ambitions in the sector. The first two now own 60% and 30% respectively. Following this operation, the valuation of Hulu was estimated at 15 billion dollars, compared to 5.8 billion in 2016, a nice increase.
Admittedly, this is still a long way from the $153 billion valuation of Netflix, the market leader. But Hulu has a few arguments in his favor and in particular his business model.
Where Netflix has so far chosen not to offer subscriptions that include advertising, Hulu has adopted the opposite strategy. The platform thus has three formulas: the first at $44.99 per month gives access to the platform and a package of channels, the second at $11.99 allows you to enjoy streaming without advertising and the last for $5.99 offers the same service but with ads. It is the latter option that has proved particularly lucrative for Hulu, which was even able to afford the luxury of lowering its price by two euros last January. It was previously proposed at $7.99 per month. This is a particularly strategic decision for Hulu, which is able to offer a very attractive, but equally profitable, offer. According to information obtained by The New York Times, at this new rate, the service still generates more than $15 in revenue per subscriber. By 2018, the company’s advertising revenues had reached $1.5 billion, up 45% over the previous year, and the rate change should accelerate this increase.
“Hulu’s decision to reduce the price of its most affordable, advertising-supported package will help bring more users – and more advertising dollars – to the popularstreaming platform,” notes eMarketer in its latest report on the company. The analyst firm predicts that Hulu’s advertising revenues will reach nearly $2.7 billion by 2021, an increase of 20.5%. This is almost double the previous estimate, which was +11.4% before the change in the positioning of the offers. It should be noted that when Hulu lowered the price of its cheapest package, the platform has conversely increased its most expensive formula by 5 euros (previously offered at $39.99), proving that it is particularly betting on the first one.
“In such a competitive video streaming landscape, Hulu’s reduced prices for its advertising-supported subscription will almost certainly increase the audience, attracting those who were hesitant to subscribe to the entry-levelformula,” says Monica Peart, senior director of forecasting at eMarketer. In support of this, the firm points to a survey conducted by the Interactive Advertising Bureau which shows that more than half of the Americans surveyed (56%) said they are not bothered by advertising if it allows them to pay a cheaper subscription.
Meanwhile, Netflix explained in its last quarterly report that it is considering price increases in the United States, Mexico, Brazil and parts of Europe. In its domestic market, after a $1 to $2 increase in January, which will gradually be applied to all subscribers, Netflix is offering packages starting at $9 a month.
Repeating successes like The Handmaid’s Tale
Admittedly, Hulu is still well behind Netflix in terms of subscribers. In the United States, the only country where Hulu operates, the platform had 25 million Hulus at the end of December 2018, compared with 58 million for Netflix. However, subscriber growth is growing particularly rapidly for the Disney and Comcast platform, with a 47% jump over the previous year, where Netflix is experiencing a slowdown in subscriber growth in the US. The Reed Hastings platform is beginning to feel the effects of competition and price increases in its historical market.
In the first quarter of 2019, Netflix generated sales of USD 4.52 billion and a profit of USD 344 million. But both companies burn a lot of cash. Hulu is not releasing all of its figures, but its losses were estimated at $1.5 billion last year. Netflix, for its part, plans to spend between 3 and 3.5 billion just to cover the increase in its structural operating costs.
Netflix therefore benefits from a much greater financial capacity. But if Hulu does manage to significantly increase its subscriber base and revenues through advertising, the platform could be a magnet for Netflix in its home market. For example, by having more financial capacity to repeat successes with original creations such as The Handmaid’s Tale, the first 100% streaming series to win an Emmy for best drama series in 2017. And yet, these creations are the sinews of the war to succeed in attracting new subscribers.