nScreenMedia OTT multiscreen media analysis

CandW discuss Amazon’s AVOD service, Hulu’s 2020 profitability

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Amazon’s rumored move into free, ad-supported video sounds like a good one. However, getting good content and executing well could be a challenge. Hulu’s ad and subscription revenue is growing strongly but won’t lead to profitability by 2020.

Chapter 1: Amazon aiming for TV ad revenue (0:30)

The Information reported that Amazon is planning to launch a free, ad-supported video like the Roku Channel. The service, which may be called Free Dive, is aimed at Fire TV users.

Both Will and I think this makes much sense of Amazon. Will likes it because it is a nice compliment to other video efforts the company has launched. He also thinks it positions the company well to expand into new revenue areas, especially TV advertising.

I like the idea of Amazon launching a free, ad-support service because it helps to boost engagement of Fire TV users. The 22 million active Roku users watch 163 minutes through the company’s devices.

The biggest challenge will be licensing content for the service. Library TV shows and movies are in high demand, and most of the premium content has already been snapped up. However, Amazon’s Channel partners could help. Amazon may be able to encourage some of them to make content available for free in Free Dive. The opportunity may be a good promotional vehicle for an SVOD service and may earn a little extra ad-revenue as well.

Chapter 2: Amazon flunking on live delivery in the UK (10:20)

Another reason to be a little cautious about Amazon’s ability to deliver a great ad-supported service is that it doesn’t always get things right. The company has exclusive rights to the US Open tennis tournament in the UK. However, UK viewers are angry at the quality of the video and the lack of basic DVR-like functionality.

Chapter 3: Hulu won’t be profitable by 2020 (14:30)

eMarketer forecasts strong growth for Hulu ad revenue through 2020. The company says Hulu will increase ad revenue from $1 billion in 2017 to $1.4 billion in 2020. However, Hulu has a dual revenue model: ads and subscription revenue. Moreover, based on nScreenMedia estimates, subscriptions provide the lions’ share of revenue for the company.

nScreenMedia estimates Hulu earned $1.6 billion in subscriber revenue in 2017. Total revenue was approximately $2.6 billion with 38% coming from ad sales. Forecasting Hulu’s performance out to 2020, the revenue balance will tilt even further toward the subscription side. The growing influence of Live subscribers will help boost revenue to $7 billion, with 20% coming from advertising.

The impressive growth in revenue likely won’t make the company profitable. The low-margin Live revenue accounts for most of the growth. With Hulu losing $1 billion in 2017, and likely more in 2018, it will take more than three years to erase the red ink.

Notwithstanding the lack of profitability, there is still much value in the service for Disney when it assumes control.

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