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Distribution: Hulu Antes Up

Third-Place SVOD Provider Uses War Chest to Chase Netflix, Amazon 5/11/2015 8:00 AM Eastern

WHEN NEWS BROKE late last month that Hulu was ponying up at least $700,000 an episode for Sony Pictures Television’s Seinfeld, a show that went off NBC in 1998 and has been airing in syndication for two full decades, it signaled that a far more competitive era of buying and selling content is upon us.

 

“Wow, that’s pretty amazing. That was a long time ago … and for a number of years that we made those shows people weren’t that into it,” said Seinfeld star and creator Jerry Seinfeld at the Hulu upfront in New York. “I just can’t believe that the show is still here. This is a pretty mind-blowing moment.”

 

Last October, Netflix bought Warner Bros.’ Friends, which ended its NBC run in 2004, for about $500,000 an episode. SPT got its record-setting price without Netflix even bidding. Assuming those prices are on target, the total price for each show is similar: at 236 episodes, Netflix paid about $118 million for Friends, while Hulu paid about $126 million for 180 episodes of Seinfeld. Both shows over their total runs have made as much as $3 billion each.

 

The first sign that Hulu was getting more aggressive was its purchase of CBS’ CSI, announced in February, for an estimated $120 million on the low end. Hulu also just made its first licensing deals with Turner Broadcasting and AMC Networks, giving the service exclusive subscription video-on-demand rights to such shows as anticipated Walking Dead spin-off Fear The Walking Dead and TNT’s The Last Ship. Behind the scenes, Hulu also has gone hard after some other deals that ended up going to Netflix, such as Warner Bros.’ Gotham. At its upfront, Hulu name-checked all of the above, plus Viacom’s South Park and closed with Seinfeld. The message was unmistakable.

 

All of that spending signals that Hulu is ready to play hardball in an already competitive marketplace. What that means is that prices will go even higher for the most desired programming, as distributors fight over exclusivity and other privileges. It also gives sellers a third sales window for top off-network shows such as Friends and Seinfeld, and down the road, potentially for other big performers The Big Bang Theory and Two and a Half Men.

 

Hulu is currently considered to be in third-place among the SVOD players, but it announced at its upfront that subscriptions had risen 50% to 9 million from 6 million. Although it’s hard to parse out Amazon’s true video subscribers, considering that all members of Amazon Prime automatically become Instant Video subscribers, research firm IHS estimates that 9 million of those subscribers use the service to watch video.

 

Those figures put Amazon and Hulu far behind Netflix, which has about 41 million subscribers, but Hulu’s audience is watching more video, with total streams up by 77% in the first three months of this year.

 

“Every category of measurement, including hours watched and hours streamed is up dramatically year over year,” said Mike Hopkins, Hulu’s CEO, in a statement. “With additional marketing spend, bigger content acquisitions and a new slate of premium originals, the Hulu drumbeat will only continue to grow louder.”

 

“It doesn’t have to be a zerosum game,” said Dan Cryan, IHS, director, digital media. “If Netflix, Hulu, Amazon and these days, HBO as well, can collectively put together enough compelling and differentiated offers, the lesson from the premium cable business is that they can all grow and develop healthy businesses. This market is still conspicuously in its growth phase.”

 

Why exactly Hulu made the decision to get aggressive remains to be seen. Hulu is a joint venture of Comcast’s NBCUniversal, Fox and Disney-ABC. With NBC, Fox and ABC behind the service, the broadcast networks seem to be placing bets in anticipation of a day when people mostly watch their TV online.

 

Another theory is that Hulu is ramping up in order to sell. In 2013, Hulu tried to find a buyer, but couldn’t get anyone to pay the price it wanted. Instead, it opted to invest $750 million in the company, the results of which we are seeing now.

 

“It was all the owners’ programming on there and potential buyers felt they could just pull that programming the minute they wanted to,” Deana Myers, SNL Kagan senior analyst, said. “My guess is that they are building it up with a goal of perhaps selling it.”

 

In the meantime, the studios welcome the competition with open arms: “Hulu’s owners see that this space is changing and this seems to be the way in which certain types of people are willing to consume,” said a top distribution studio executive. “If you have three competitors, you can assure competition. It keeps the ecosystem healthy.”

 

And the bank accounts flush.

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