Hulu Is Greatest Threat to Pay-TV Providers – Study

Despite having a considerably larger subscriber base and a global footprint and recognized brand, Netflix is not the company driving cord-cutting among US pay-TV subscribers. Instead, it's Hulu LLC subscribers that are more likely to end their pay-TV subscriptions according to a report on CNBC from researcher M Science .

The study found that Netflix Inc. (Nasdaq: NFLX) subscribers were cutting the cord, but not at a substantially higher rate than non-OTT subscribers. But Hulu subscribers demonstrated a considerably higher tendency to churn out of pay-TV.

The primary reason for that is the type of content both services offer. Netflix does have a substantial library of TV programs in the US, but it tends to license content in a later release window. As such, many of those episodes have been broadcast well before they appear on the online service. However, Hulu is owned by the Disney-ABC Television Group, NBCUniversal, Fox Entertainment Group and the Turner Broadcasting System. It live streams TV shows from more than 50 channels including the major broadcast networks. It is the classic skinny bundle -- far more likely to appeal to viewers interested in a lower-priced package of channels.

But that's not necessarily all bad news for pay-TV providers. It suggests that there is a difference in the demand for OTT services and skinny bundles. This means that an operator could also have success in selling skinny bundles of their own, and several operators such as AT&T Inc. (NYSE: T) and Dish Network LLC (Nasdaq: DISH) have already launched them. Hulu's brand would almost certainly rate higher than most operators, but operators already have an existing relationship with the vast majority of the US subscriber base, and can package their skinny bundle with broadband -- and we know from past performance that bundling is attractive to viewers.

Revenue from a skinny bundle is less than a full-fat package, but, as some operators have pointed out, just because you start at a low price doesn't mean everyone will stay there. Operators have the opportunity to create attractive packages at different tiers and price-points, and move their customers towards higher monthly spends. And they won't have to pay carriage fees for a broader set of channels, as they do for a full-fat service today.

Conversely, the success of OTT streaming services isn't necessarily a death knell for pay-TV providers. If services such as Netflix and Amazon are not directly competitive (if not exactly complementary) they have an opportunity to work with these OTT services, integrate them into their line-up and potentially share revenue with them.

Speaking at this year's Mobile World Congress, Netflix CEO Reed Hastings went to great lengths to position his company as "just one more provider of content," and therefore no threat to service providers. (See We'll Make Buffering Obsolete, Like Dial-Up: Netflix CEO.)

He insisted that Netflix has always been about content, not distribution. "We've always wanted to create excellent programming, and distribute it worldwide, all at the same time," he said. This study would suggest that there is at least some truth to that.

— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation

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Michelle 6/28/2017 | 2:54:47 PM
Re: What happens after cord cutting? @Joe Thanks for the added insight. I've wondered if users go back to cable after a while. I can see Hulu's appeal for first-time cord-cutters.
danielcawrey 6/27/2017 | 4:07:55 PM
Re: What happens after cord cutting? It was very smart for Hulu to get off the ground early. The content providers realized they did not want to be subsumed by OTT, and thus Hulu was born. It is an entirely different animal than Netflix if you've ever used it - and this research might be right. 
242ak 6/27/2017 | 2:15:07 PM
Re: What happens after cord cutting? Interesting point, Joe. There are people arguing this whole OTT thing is overblown. That it's to do with a phase in life, and as younger viewers pick up mortgages and settle down to a suburban life, they'll go right back to full-fat pay TV. You're actually saying something a bit different, if I understand you right  -- that it's almost kind of an experiment. Sounds good at the time, and maybe even is good for a while. But eventually, plonking down on the couch and watching the big screen is too established a behavior not to come back to. 
Joe Stanganelli 6/27/2017 | 11:26:41 AM
What happens after cord cutting? Hulu may be (or may primarily contribute to) the impetus here for cord cuttinng, but I think it would be interesting to see where those cord cutters are a few years later.

Hulu certainly helped drive my own decision to cut the cord way back when, but I quickly stopped using Hulu altogether once the limitations on content and the annoyance of the repetitive ads became apparent. I looked for content elsewhere.

And since then, I have reattached the cord. I missed just turning on the TV and being done with it.
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