Though not the most valuable asset gained through the Fox acquisition, Hulu brings real value to Disney. Can the content giant maintain the delicate balance between Hulu participants that is the essential component of Hulu’s success?
The value of Hulu to subscribers
One of the greatest convenience of Hulu to the 13+ million subscribers is as a hub for broadcast TV content. Nowhere else online can a viewer turn to a single place and find all the latest episodes of their favorite shows from the top four broadcast networks. For example, on Hulu, a viewer can catch recent episodes from:
- ABC, including Grey’s Anatomy and The Good Doctor
- NBC, including This is Us and Law & Order: SVU
- Fox, including Empire and The Simpsons
- CBS, including Young Sheldon and Mom.
Anytime access to all this content for $7.99 a month is a good deal for many. I suspect an increasing number are taking advantage of watching ad-free for $4 more.
In a world of fractured online services, consumers know they can come to Hulu and find the broadcast TV show they desire. No hunting across multiple services required. In other words, the key value of Hulu is as a TV hub more than anything else.
Maintaining a balance between the partners
Former CEOs Jason Kilar and current head Mike Hopkins did an excellent job keeping the competing interests of the partners in Hulu in check. They managed to achieve a balance between the needs of the business and the needs of the partners. Moreover, Mr. Hopkins persuaded CBS to provide content even though the broadcaster has a competing service, CBS All Access.
The formula is working very well. Hulu engagement is the best among the top four SVOD services. For example, comScore says that the average subscriber watches ten days per month for an average of almost 3 hours per viewing session. The average U.S. Netflix subscriber watches 12 days per month for 2 hours and 12 minutes per session.
Stresses on the model
The balance between the partners is liable to be more difficult to keep in 2018. Comcast has been barred from participating in the decision-making at Hulu as part of the cabler’s agreement with the government when it purchased NBCU. During that time, Hulu introduced the ad-free tier of the service, a provision NBCU was against but could do nothing to stop. It has also added a vMVPD tier, called Hulu Live, which competes directly with Comcast’s pay television business.
NBCU has also announced that it will launch a direct-to-consumer (DTC) service in 2018. Expect that service to be like CBS All Access, and to employ similar strategies. For example, CBS is now releasing premium content like Star Trek: Discovery through All Access. Might we see a reboot of The West Wing or Cheers available exclusively through NBC’s DTC service?
The last of the government restrictions on the Comcast/NBCU deal expires in September of 2018. After that, expect Comcast/NBCU to become a lot more vocal about what is happening at Hulu.
Can Disney maintain the balance?
Some industry insiders have said that the lack of a clear leader at Hulu has caused the service to move too slowly and too cautiously. They see a controlling interest by Disney as a good thing, solving the leadership dilemma.
However, the lack of a dominant Hulu leader has kept individual partner demands in check and allowed the evolution of a very compelling SVOD service. The delicate partner balance created a situation where Time Warner Inc was comfortable taking a 10% share. As well, CBS agreed to contribute its best broadcast content despite having a competing DTC service.
Disney’s controlling interest will completely change the balance at Hulu. Its major challenge will be reassuring all the essential partners of the business that it is still the right place for their content to be. Losing NBCU or CBS content from Hulu will seriously devalue the service for subscribers and could deal it a fatal blow.
Hulu is a valuable property for Disney
There is real value in Hulu for Disney. As a hub for TV content online, many consumers will see more value in a $7.99 Hulu subscription than $6.99 for CBS All Access or similar NBC service. With so many people using the service, it will be an excellent outlet for the ESPN and Disney-branded DTC services appearing in 2018 and 2019 respectively. However, keeping NBCU and CBS content on the platform will be a major challenge going forward. Without CBS and NBCU, the appeal of Hulu to consumers could evaporate and along with it all the value for Disney.
Why it matters
Disney’s purchase of Fox assets will give the company a controlling interest in Hulu.
As the hub for broadcast TV online, Hulu is a valuable property for Disney acquire.
It will be tough for Disney to keep ABC and CBS content on the platform after the deal completes in 2018.
Without all the latest broadcast shows, Hulu will become much less valuable and could lose many of its existing subscribers.