3 Things Every Netflix Inc. Shareholder Should Know About Hulu

By Markets Fool.com

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Moone Boy is a BAFTA-nominated sitcom, and a Hulu original series. Credit: Hulu.

When it comes to discounting Hulu as a Netflix competitor, I'm as guilty as the worst skeptics. Not that I haven't been without reason to doubt the business. From its failed buyout to management turmoil, Hulu has seen its share of turbulent times.

And yet that company isn't anything like the one that's emerged in the two years since Disney, 21st Century Fox, and NBCUniversal poured $750 million into Hulu. Today, Hulu is funding more original series and licensing the sort of content that used to go Netflix by default.

Hulu is also boldly sticking with advertising at a time when cord cutters are abandoning traditional television. In doing so, the upstart streamer is proving that consumers don't mind pitches that are targeted to actual consumption. There's also more money to be had when you can charge subscribers for access, and advertisers for engagement.

Does that mean Hulu is the next Netflix? No, but it also doesn't need to be in order to threaten its chief rival. Let's talk about the company's three key advantages and how they might cause damage toits chiefcompetitors.

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Three surprising advantages

  1. Hulu is winning more subscribers who are watching more. In its April upfront presentation, Hulu announced that it had grown its membership 50% since 2014 to "nearly 9 million" subscribers. More impressively, total streams rose 77% in the first 90 days of 2015, and consumers took in 30% more. People are watching what Hulu is broadcasting. A stickier Hulu could steal some streams from Netflix.
  2. Hulu has its hooks in the hottest property on cable. Around the same time as it struck a deal to be the exclusive streaming home for Seinfeld, Hulu secured equally exclusive streaming rights to new programming fromAMC Networks . The lineup includesFear The Walking Dead, a summer spinoff of the zombie drama that has become the most-watched show on cable TV. The deal could win Hulu cord cutters who'd have no other way to get access to the program. It's also a symbolic win: AMC credited Netflix with boosting its shows by allowing the curious to binge watch prior seasons of not onlyTWD, but alsoBreaking Bad andMad Men.
  3. Digital video advertising isn't a roadblock. While we don't know Hulu's specific advertising numbers, we do know that the overall market for digital video is on the rise. According to Standard Media Index, combined advertising revenues for digital video platforms such as Hulu and digital TV properties such as NBC.com grew 12% percent year over year in the first quarter.Mix in Hulu's higher viewership numbers, and it seems clear that the company is finding ways to engage and keep viewers. Advertisers must love that.

The one thing Netflix needs to do to keep winning
Even with these tailwinds, Hulu isn't likely to seriously threaten Netflix so long as there's another target: cable and satellite incumbents that strangle both producers and consumers with massive (and frequently unwanted) bundling deals.

The good news? Emmy-winning streaming originals such asHouse of Cards,orAmazon.com'sTransparent, prove to viewers that the best programming isn't buried in the bundles. Add in the option to buy HBO as a one-off via HBO Now, and the incumbents' grip weakens further, creating more cord cutters and more demand for a la carte options.

Hulu and Netflix are never going to be friends. Fortunately, in a market like this, they don't need to be enemies to both win.

The article 3 Things Every Netflix Inc. Shareholder Should Know About Hulu originally appeared on Fool.com.

Tim Beyerswonders if any actual benefits come with being a streaming sensation. He's also a member of theMotley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission and owned shares of Apple, Disney, and Netflix at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Amazon.com, AMC Networks, Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, AMC Networks, Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.