Editor’s Corner—Why Disney probably isn’t worried about Hulu’s losses

Hulu is continuing the slow and steady pace for updates to the device compatibility list for its new UI and live TV service, this time adding 2017 Samsung smart TVs to the list.
Hulu's losses keep piling up as Disney prepares to double its stake in the company. (Hulu)
Editors_Corner-MUNSON

Hulu could be in line for some substantially expanded losses this year. But as Disney closes in on a majority stake in the company, it’s likely the House of Mouse isn’t overly concerned.

Hulu doesn’t publicly disclose its financial performance but through a round of admittedly rough math last week from a few publications, it came to light that the company could be staring down a $1.5 billion loss in 2018. That’s based on losses reported by 21st Century Fox, Comcast and Disney, who each own 30% of Hulu (AT&T’s WarnerMedia owns the other 10%).

A loss of $1.5 billion is quite a bit bigger than the $920 million that BTIG analyst Rich Greenfield said Hulu lost in 2017. Greenfield said that Hulu’s owners pumped a combined $1 billion investment into the company in 2017 and will invest another $1.5 billion in 2018. According to a research note published in February, Greenfield anticipates Hulu will lose $1.7 billion this year.

But one big development that occurred in the subsequent months was Hulu revealing in May that it had more than 20 million subscribers, up from 17 million in January.

That kind of subscriber growth, despite the current financial drain, has to have Disney excited. During Disney’s second-quarter earnings call, CEO Bob Iger said that after the 21st Century Fox deal closes and Disney takes on 60% ownership of Hulu, the streaming service will “fit in very significantly to our app strategy.”

That app strategy includes ESPN+ and the Disney-branded streaming service due to launch in 2019. With ESPN+ still getting off the ground and the Disney service, though promising, not guaranteed to catch on, Disney is probably ecstatic to have an SVOD with subscriber growth momentum and the ability to bring in both subscription and advertising revenue from both its on-demand video service and its livestreaming TV service.

Of course, losing more than $1 billion in a year is never good thing. But since those losses, associated with higher programming and labor costs, are piling up in service of Hulu chasing SVOD kingpin Netflix, it’s worth taking a look back at Netflix’s financials from a few years ago to gain some extra context.

Hulu just recently passed 20 million subscribers, but Netflix hit that number way back at the end of the fourth quarter of 2010. Netflix had just added 3.08 million U.S. streaming subscribers (more than it had added in 2009 all together) and the company, which is now an international SVOD powerhouse, was just beginning to test the waters in Canada. The company that quarter pulled in $596 million in revenue, $78 million in operating income and $47 million in net income: definitely not a loss but certainly not setting the world on fire either.

At that time, Netflix had yet to become an original programming giant and was still focused on “being one of the few ways to enjoy the complete history of a series, instantly and commercial free,” mostly through licensing deals with programmers.

Jump ahead to the most recent quarter and Netflix is a different beast entirely. The company ended the quarter with 130 million streaming subscribers. Though it added just 700,000 new U.S. subscribers, the company’s international base continued to surge, adding another 4.58 million subscribers. And the company saw big financial growth, with revenue up annually from $2.78 billion to $3.9 billion, and operating income up annually from $128 million to $462 million.

Much of Netflix’s explosive growth story can be attributed to its aggressive original programming campaign. The company intends to spend more than $8 billion this year on content and has already taken out a $1.9 billion debt offering to help keep the hits like “Stranger Things” and “The Crown” coming.

Hulu is still spending considerably less than thatthe company dropped $2.5 billion on content in 2017and it is just beginning to catch its prestige wave with series like “The Handmaid’s Tale.” Of course, it’s worth noting that Hulu has been around since 2007, so its annual rate of growth during that time is not overly impressive.

But if Hulu can maintain its subscriber growth momentum and keep adding original programming that captures the streaming zeitgeist, then Hulu could become an earner for Disney and remain an important part of its streaming strategy well into the future. — Ben | @fierce__video

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