Netflix May Beat Hulu at its Own Game
The hype over Hulu’s future barrels on, despite the company’s clearly unsustainable business model. They’ve pledged to expand their video streaming shows to at least a half-dozen international markets, starting with the UK in early 2010. Their 230 content deals, 400 advertisers, and 40 million users sounds impressive — but ads just aren’t enough to sustain free content. Earlier this week, Hulu CEO Jason Kilar underscored he was indeed a “capitalist” and said he was bullish on Hulu. News Corp.’s Chase Carey already hinted at subscriptions in 2010 and NBC Universal TV chief Marc Graboff told reporters that Hulu was experimenting with different models — more advertising or subscription-based windows.
So what happens to those 40 million users when they have to pay for content? I’m guessing they go elsewhere.
If people don’t want to hop from site to site looking for their favorite shows, why not go to Netflix? While cable operators are concerned about losing customers to Hulu, it’s Hulu that should be concerned — about losing customers to Netflix, its biggest, most under-the-radar competition.
Netflix has a lot less to lose than Hulu, not to mention bigger plans. Netflix just announced it will start streaming movies and TV shows overseas in 2010, and expand beyond the Xbox to Sony’s Playstation 3. Rumors suggest the Wii is next on Netflix’s hit list. Netflix has a huge user base to build on — somewhere between 14 million and 38 million, depending on whether you look at Comscore’s or Nielsen’s numbers, says Martin Olausson, an analyst at Strategy Analytics. On track for a record year, Netflix has a chance to steal away Hulu’s audience.
Subscribers shot the company’s earnings up 48% in the third quarter, and a Netflix representative says the company’s Watch Instantly service will evolve further once they start writing bigger checks to the studios. Right now 42% of Netflix members have already streamed a movie or TV show. As that number grows, Netflix stands to save a bundle in payments to the USPS — forecast at $600 million in 2010 and $700 million in 2011. As more people stream, that number drops and Netflix can pump that money into the studios to negotiate more and better rights.
Does that mean more TV shows? Netflix already made a deal with Disney/ABC in August for TV content, and chances are they’ll keep plugging the TV deals until they have at least as much as Hulu. Twenty percent of Netflix’s disc-based business is TV episodes, after all. Take ABC’s hit Lost as an example: On Hulu you get all of seasons 1-3, but only 13 episodes out of 14 for season 4, and 9 out of 17 episodes for season 5. Granted, it’s free, but who wants to miss a finale and skip 8 episodes of the previous season? At that point you’d probably get those episodes from Netflix — and why bother? If you’re already paying $9/month for Netflix, you can stream seasons 1-4 and order season 5 on DVD — and you won’t miss an episode.
Say you already pay $80/month for your cable bill. Are you going to dump another $10/month (as an educated guess) for a premium Hulu subscription when you can get a way better selection of movies streamed or via DVD from Netflix, along with a solid selection of TV shows as well? As Netflix scores more rights, wouldn’t you toss out your cable, too?
Further reading on Netflix:
Diane Mehta writes about media and other business topics for Fast Company, The Big Money, the New York Times, and CNBC European Business.
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