Editor’s Corner—Should Netflix care if Hulu catches up?

Netflix sign Los Gatos
Hulu added 8 million U.S. subscribers in 2018, while Netflix will likely add approximately 5.5 million. (Netflix)
Editors_Corner-MUNSON

Hulu has more than 25 million subscribers after adding 8 million in 2018. That growth rate is ahead of Netflix in the U.S., but will it matter much for Netflix if Hulu closes the gap?

Hulu CEO Randy Freer told CNBC that it’s “absolutely possible” for Hulu to catch up to Netflix, which currently has nearly 57 million paid subscribers in the U.S.

“I think that 2018 is a good view of how it’s going to happen. What we look at from 2018 is that we added more subscribers in the U.S. than Netflix,” Freer said. He also said that Hulu expects to grow even more in 2019 than it did in 2018.

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In 2018, Netflix has so far added just more than 4 million new domestic paid subscribers and expects to add another 1.5 million in the fourth quarter; Netflix reports fourth-quarter earnings on Jan. 17. That means Hulu added about 2.5 million more subscribers in the U.S. than Netflix in 2018.

That’s a significant number, but the question remains whether Hulu’s current growth lead is cause for concern. Netflix has made a habit of shrugging off competitive threats. Much has been made of the upcoming Disney+, WarnerMedia’s streaming service and a potential NBCUniversal direct-to-consumer product as possible usurpers to Netflix’s SVOD throne.

Ted Sarandos, chief content officer at Netflix, acknowledged those services and others but didn’t seem worried about them taking share from Netflix.

“They're going to get out there and they're going to do things and some of them are going to be successful. I don't think they'll be to the detriment of Netflix, but I think there's plenty of room in this business for other players to be successful,” Sarandos said at an investor conference.

It’s likely that nonchalant attitude extends to Hulu as well, even though Hulu is already in the market and growing faster than Netflix in the U.S. right now. And while Hulu is catching up to Netflix in terms of subscribers, it’s worth noting that Hulu is likely still well behind Netflix in terms of revenue.

As TV Answer Man’s Phillip Swann pointed out, a big reason for Hulu’s hot streak in 2018 is likely low prices. Throughout the year, Hulu has intermittently rolled out a $5.99-per-month promotional rate, which is $2 less than the standard $7.99 price for the limited-commercials service tier. Hulu also granted a small extension to its Black Friday deal offering the service for $0.99 per month for one year.

While Hulu said its advertising revenue totaled a record $1.5 billion in 2018 (up 45% year over year), lots of that money could be subsidizing Hulu’s promotional pricing.

But really the most important factor to consider is that Hulu and Netflix are very different services. Hulu is like a traditional pay TV service: it offers live television next to an extensive VOD library, along with original content and an ad-free option. Netflix is like a premium channel: it offers shows and movies free from the commercials and restraints placed on network television. Even in the Wild West of streaming entertainment, there’s room for both services to continue growing. — Ben | @fierce__video

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