Online video streaming services are moving aggressively in their programming. Netflix and Amazon are trying to attract viewers by offering original programming. Both services are battling with Hulu over the exclusive rights for high profile series. But now cable networks, who produce many of these series, are starting to realize that viewers may turn more and more to online streaming instead of their own TV-network. WSJ-journalist Miriam Gottfried dubbed this the ‘Netflix-problem’. The potential interest of Time Warner Inc. in a stake in Hulu complicates matters even more.
Currently, Comcast, Walt Disney and 21st Century Fox already have a stake in Hulu. Each company has a one-third stake in Hulu. If Time Warner joins, all companies should get an equal stake. A deal would likely value Hulu at more than USD 5 billion. This is still relatively modest compared to Netflix, which has a market capitalization of USD 47.5 billion. However, Netflix has a presence in an increasing number of countries across the globe, whereas Hulu is limited to Japan and the United States. The deal would help Hulu to increase its content offerings. Time Warner is the owner of Warner Bros. studio and currently licenses part of its movie and series portfolio, but a deal could commit the company to license far more.
Time Warner is also the owner of HBO, which makes the whole case a bit more interesting. HBO is fighting for an online video streaming market share as well. The network is the producer of a number of some of the most popular series, such as Game of Thrones and True Detective. There’s no doubt that licensing of these series to Hulu would be a key advantage for Hulu compared to its competitors. But this may hurt the product HBO Go and HBO’s traditional TV-network. A deal between Time Warner and Hulu could therefore be defining for the future of traditional cable networks and online streaming services.
In the recent years, TV-networks were very eager to sell their popular series to the high-bidding video streaming services. Deals of close to USD 1 million per episode were a welcome revenue driver. For older series moving to an online service is not that big of an issue, but for newer series it provides an additional argument to ‘cut the cable cord’. Cord Cutting is extremely attractive if you could watch new series and live sports events through streaming services. For example, a monthly subscription to Netflix, Amazon and especially Hulu with HBO-content combined with NFL Game Pass (or comparable sports-subscription) might provide enough content for many TV watchers and is far below the price of a cable subscription. To make viewers aware that the content on Netflix is originally from a TV-network, some networks are now pushing Netflix to show pre-roll promotion which show the logo of the Network. Although for a number of series a small logo of the network is visible in the catalogue screen of Netflix, many shows lack showing prominently the origins of a series. For older series this is not a big issue (doesn’t really matter for Frasier for example) but shows with running seasons which are not yet fully included in the streaming-catalogues may be helped. Viewers realize that new episodes are only available on the traditional network and may tune in on the traditional network. This is why ABC’s “How to Get Away with Murder” runs a short pre-roll promotion at the start of each episode on Netflix. But a show like CBS’ True Bloods doesn’t (as yet).
The On-demand and ‘binge’-feature of online-streaming is very appealing to fans of TV-series. There are many reasons for cable cutting. Awareness of new episodes on the traditional networks could help to partially slow down the ongoing decline in TV-ratings. But there’s a fundamental shift going on in our ways of watching series, thanks to the online streaming services. If a deal between Time Warner and Hulu will take place and we see licensing of popular HBO-series to Hulu, things will get very interesting for the traditional TV-networks and their advertisers.