Resurgent Hulu Threatens Netflix, Inc.

By Markets Fool.com

Hulu is getting better.

The service remains an integral player in the Internet video market, and next to AmazonPrime it is the most significant competition Netflix currently faces. Yet its success has been relatively modest compared to that of its rivals. When it comes to content and overall user experience, Hulu still lags behind. That may be why it has far fewer paying subscribers (roughly 9 million to Netflix's 62 million and Amazon's estimated 50 million).

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But in recent months, Hulu has become markedly more aggressive in the pursuit of exclusive content. A string of major deals could, in time, give Hulu an advantage over Netflix and put a dent in the latter's growth.

Hulu's string of mega deals
Within the last year, Hulu has signed several deals giving it the exclusive streaming rights to a variety of hit shows. These include both well-established series and those likely to find success in the future.

  • Last July, Hulu signed a deal giving it exclusive rights to Comedy Central's hit cartoon South Park, a show Netflix had streamed as recently as 2013.
  • In December, it signed a deal for exclusive rights to stream FX Production's future output. While FX's older shows were not covered under the pact, FX Productions has a history of excellence, consistently creating some of the most critically acclaimed and popular cable shows, includingThe Americans, Sons of Anarchy,and Louie. The later two remain key Netflix offerings.
  • In February, Hulu locked up the rights to the massively successful crime dramaCSI. The show is so successful thatCBS bragged back in December that it attracted more viewers than all of Netflix's original series combined.
  • In March, Hulu snagged the exclusive rights to Empire, a show that ended its first season earlier this year with a staggering 17 million viewers.
  • In April, Hulu signed a deal with Turner for exclusive streaming rights to shows from its cable networks TNT, TBS, and Cartoon Network.
  • Also in April, Hulu signed a deal with AMC Networks for exclusive rights to some of its upcoming content, including the spin-off series Fear the Walking Dead. Like FX, AMC has been responsible for some of the best shows in recent years, including Mad Men and Breaking Bad.
  • Again in April, Hulu acquired the rights to Seinfeld. Although it aired its last episode nearly 20 years ago, broadcast reruns have drawn larger audiences than many prime time originals.
  • Earlier this month, Hulu took over The Mindy Project. Although it under-performed network expectations, it will be a key comedy offering for Hulu going forward.

Netflix's big bet on original programming
Netflix doesn't give data on its subscribers' viewing habits, but it's undeniable that it accomplished its ascent as a business by distributing others' content, particularly binge-worthy TV series.

AMC's Breaking Bad, for example,was the second series Netflix offered in 4K, and it has continued to sign deals for scripted shows: last year, it locked up the streaming rights to The Blacklist and Friends. Hulu certainly isn't buying the rights to every show, but these deals will restrict Netflix's offerings, and limit its appeal.

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To its credit, Netflix's management has long anticipated this potential roadblock, and has been hedging its exposure by aggressively pursuing its own original series. These include House of Cards, Orange is the New Black, Daredevil, and Marco Polo, among many others.

These shows haven't come cheap, and Netflix was initially questioned for pursuing such a strategy. It wasn't initially clear that the $100 million Netflix spent on House of Cards'first two seasons would pay off.

Unfortunately, it's fairly difficult to judge relative success (or failure) of Netflix's exclusive series. Since Netflix doesn't release ratings, it's hard to say how many of its subscribers are there primarily for its own shows (such asBloodline), and how many are there primarily for others' shows (such as The Walking Dead). Netflix's management has attributed much of its recent subscriber growth to its original content push, and has cited the release of some its big shows to explain seasonal swings in membership additions, but has given no hard numbers.

Nevertheless, with the competition for licensing heating up, it's clear that Netflix will increasingly have to rely on its own programming for continued success. Investors may have to focus on other measures, such as Emmy wins and general social media buzz, to discern the strength of Netflix's offerings.

The article Resurgent Hulu Threatens Netflix, Inc. originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, AMC Networks, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, AMC Networks, Apple, and Netflix. 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.