Hulu is poised to go where Apple (NASDAQ: AAPL) tried to go last year with the launch of a relatively skinny live-streamed pay-TV service bundle with robust coverage of the Big Four broadcast networks and significant number of national cable networks.
"It's our belief that in order to launch a successful national over-the-top product, you need the four broadcast networks to be anchor tenants on that project," said MoffettNathanson analyst Michael Nathanson, delivering the presentation "Hulu: The Empire Strikes Back" to the company's investor clients.
Broadcasters, Nathanson said, reach an average of 41 percent of the country on any given week, while reach for national cable channels averages collectively only around 6 percent reach.
Modeling what Hulu's service will look like when it launches next year, MoffettNathanson projects the service will include participation from all three of Hulu's media-conglomerate owners.
"We think that with the backing of Disney and Fox and the tag-along prospects of NBCU, you've got three of the four broadcast networks lined up," Nathanson said. Cable channels operated by these conglomerates such as ESPN, USA Network, Bravo, FX and Fox News will also be part of the bundle, as will various regional sports networks.
Based on average pricing, MoffettNathanson estimates the wholesale price of Hulu's bundle to come in at around $34 a month.
As the firm noted, Apple tried hard last year to enlist the broadcast networks into a similar live-streamed pay-TV replacement product, but ran into several challenges. First, Apple was able to interest the Big Four networks, but not their affiliates. With only the network owned and operated stations in the mix, Apple would have reached only 20 percent of the Big Four footprint.
A year later, Nathanson said, "There's now more of a structure in place to have the affiliates participate in OTT products."
Secondly, Nathanson added, Apple unsuccessfully tried to "cherry pick" channels from conglomerates.
"There's no way Fox or Disney would launch and let Hulu cherry pick their bundle," he said.
- listen to this MoffettNathanson presentation (sub. req.)
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