Can Hulu’s New Offering Threaten Netflix?

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While more than 75% of Netflix (NASDAQ:NFLX) subscribers believe that it will replace traditional TV, the company’s competitor Hulu, is planning to launch a live TV streaming service, according to recent reports.  Hulu is planning to roll out the new service in 2017 where Walt Disney and 21st Century Fox, its co-owners, will add their networks such as ABC, ESPN, Fox News and various national and local sports channels of the Fox network. Hulu’s subscriber base of 9 million users is much lower compared to the nearly 50 million subscribers of Netflix in the U.S. The new live streaming service offered by Hulu will be open to all and not only to existing Hulu subscribers. We believe that Hulu’s new offering is less of a threat to Netflix than it is to other players, with which it will more directly compete.  These include other players such as Dish Network’s Sling TV.  In contrast, Netflix has its strong consumer base of video-on-demand viewers preferring its high quality content.  It thus should not be impacted by this new offering from Hulu.

See our complete analysis for Netflix

Netflix’s Brand Proposition Is Video On Demand

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Netflix management has time and again reiterated that it does not have much interest in bringing live TV to its users. The company’s focus remains high quality video on demand and most of its audience is loyal to the service due to the popularity of its original shows. In a recent Morgan Stanley survey Netflix was voted as the ‘best’ original content media company compared to any other premium TV or internet-video subscription service, beating HBO which had occupied this position for several years. A survey by investment bank Cowen revealed that 58% of subscribers pay for Netflix for its original shows. This number is up from 37% in December 2014, indicating the popularity of its shows. Given the popularity of both Netflix’s original content and its video on demand service, we believe it should be able to retain and grow its subscribers in the long run.

Live Streaming Of Sports And Events Can Attract Subscribers

Given its lack of interest in live TV, Netflix might not be able to provide live sports streaming to its users, where players such as Hulu can benefit by starting a live streaming service. As an increasing number of users move towards alternative streaming media instead of traditional pay-tv, they will miss out on live sports if they opt only for Netflix’s video on demand content. While most of Netflix’s subscribers also subscribe to other services, if players such as Hulu can offer a combination of high quality video on demand along with live streaming of popular sports and other events, they could attract more users in future. Amazon is also reportedly increasing focus on sports programming for its streaming service, which it now offers as a standalone subscription and not as a part of an offering to its Prime Members.

Netflix’s strength is in the quality of its content and popularity of its original shows. However, as the company reaches a saturation point in the U.S. with domestic subscriber growth slowing down, it might have to think of innovative ways to attract more consumers. Live streaming of popular events and sports could potentially attract users and might benefit Netflix in the long term, as the alternative streaming media continues to evolve and competitors offer innovative content to viewers.

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