Hulu has been on a tear for the last few months when it comes to locking in exclusive deals for older TV content. The online video service snatched up all episodes of the first CSI: Crime Scene Investigations series in February, and soon afterward became the sole streaming home for iconic series Seinfeld, paying almost $700,000 per episode.
The provider has since added several more exclusive licensing deals to its content portfolio, including a record-breaking $192 million for the rights to South Park through 2019, guaranteeing that it will have sought-after series for several years to come.
What happens after those deals expire? Hulu had better have some more good cards to play, because content-hungry competitors are storming in.
A report commissioned by Vindicia and Ooyala found that while premium OTT revenues (premium being providers that require a subscription to view their content) will double and perhaps triple by 2018, to $8 billion to $12 billion, smaller niche providers will nibble away at the SVOD pie. Netflix, for example, may see its market share dip from 85 percent in 2014 to just 50 percent of the global market by 2018, according to Paula Minardi, digital content manager for Ooyala, in an interview with FierceOnlineVideo discussing the report.
Add that to the fierce competition that remains strong for licensed content. Hulu's content expenditure is slightly less than that of Amazon, which reportedly will spend $1.5 billion this year on all its content (licensed and originals). But, like Netflix--whose spending has increased by $1 billion since 2012, to more than $3 billion a year--that cost keeps climbing.
Netflix has weathered the changing content acquisition market fairly well, bolstering its appeal with original series and forward-thinking content deals like its simultaneous theatrical release of the sequel to Crouching Tiger, Hidden Dragon. But Hulu doesn't have a Ted Sarandos to plot its course, and it no longer has the advantage of being one of the early entrants to a wide-open SVOD space. Its business model is still a little wonky--some content is free, supported by ads, while other content is only available to subscribers, but still contains ads. Its owners' interests--NBCU, Fox and Disney are part of the joint venture-- still may conflict with its ability to compete against other SVOD providers.
With Sling TV and PlayStation Vue already in the marketplace, Comcast launching an OTT service (albeit only for Xfinity broadband subscribers), and Verizon putting the finishing touches on its mobile-first OTT service, consumers will have increasing options for getting a wide array of content. Are they willing to shell out that $8 monthly rate for Hulu when they can get live linear TV and on-demand content from another source?
MTM, which conducted the Ooyala-Vindicia study, noted that "the mass market will remain dominated by a small number of major service providers" over the next few years, based on responses from its study participants--45 executives from companies with a stake in the OTT segment.
"I don't think that it will be a one-pony race--the big studios and broadcaster services will be really competitive entrants in this space," one unnamed participant told MTM in the report. "But there won't be space for more than a handful of big services--I think that the market will concentrate around a small set of dominant players. There just isn't that much premium content to go around and it's hard to create lots of new content quickly."
Some study participants pinpointed the amount that U.S. consumers are willing to spend for OTT services at $38 per month--limiting the number of SVOD services they sign up for to three or four.
So far, I'm picking on Hulu as being at risk from increasing OTT market competition. But it's interesting to note how hesitant another big player in the over-the-top space, Apple, has been when it comes to offering a linear or on-demand streaming service along the same lines as Sling TV. While Apple has long delivered music and video content for download via iTunes, it has stayed mum on streaming plans--leaving some to wonder if it will enter the space at all.
One respondent to the study feels that Apple just doesn't have the know-how to jump into content acquisition at this stage of the streaming game. "Apple is one of the few market participants that could compete with Netflix on innovation spend, but they lack content rights and will struggle to get them at scale. They have no real experience with original content creation--iTunes and the App Store are platforms for third-party content."
What strategies can Hulu put in place to hold the line against increasing competition? The MTM report pointed to a few ideas. Hulu is already moving to reach more potential subscribers by putting together affiliate deals with MVPDs, particularly with Tier 2 cable operators like Suddenlink which make SVOD services including Hulu available via TiVo set-top boxes. Hulu could also consider adding a linear component to its SVOD service, or perhaps more deeply curated content.
So, does all this spell trouble for Hulu, currently sitting in third place among the Big Three SVOD providers? That's difficult to say for certain. Hulu certainly hasn't been idle, increasing its online reach by making its free version available on Pluto.TV and adding some forays into original content. With the premium OTT segment apparently about to go seismic, "just wait 'til next year" may be the only phrase we can go with, for now. --Sam