How Hulu Plans to Compete With Netflix

Hulu may not be as sexy as Netflix, but the company has announced some impressive numbers about its user engagement as well as some interesting plans for the future.

May 2, 2014 at 7:38AM

If streaming services were cola brands Netflix (NASDAQ:NFLX) would be Coca-Cola and Hulu would be something less than Pepsi but maybe something more than Royal Crown. 

Hulu announced recently that it has 6 million paying Hulu Plus members (paying $7.99 a month) while Netflix has 34.4 million at that price just in the United States, as well as another 11.8 million paying members across the world.  On the surface Netflix appears to be the clear winner in the space. But Hulu has more going for it than just its subscription base.

It's not entirely fair to compare Hulu to Netflix -- the companies have different business models, but both offer digitally streaming content and both offer premium subscription services.The key difference is that Hulu has a free, ad-supported side of its business in addition to its Hulu Plus premium service and that's an area where the company has done quite well ... even if it's not as flashy as Netflix.

Hulu wants to sell more ads

As a private company Hulu does not have to share ad sales numbers, but the information it did share at its upfront presentation (an event where television networks show off new shows) suggest that the company has done tremendously well in building an engaging platform. That platform not only appeals to consumers, it has been a draw to advertisers with over 1,650 companies placing ads on the service since 2008, according to a Hulu blog post.

"Our goal is to continue to lead the online video advertising market. Our viewers are highly engaged. On desktop alone they spend an average of nearly 50 minutes per session on Hulu and they stay on Hulu for longer stretches than any other ad-supported premium video site in comScore's top 100," Hulu CEO Mike Hopkins wrote.

That's an amazing amount of engagement, which shows that while Hulu can't match Netflix in paid members, it has built a business out of offering ad-supported full episodes of recent TV shows. Customers don't have to join Hulu to use the service.

Joining, however, offers a cleaner experience with fewer ads along with access to much more content. Free Hulu may offer an episode or two of a recent show likeThe Mindy Project while Plus subscribers get access to the entire season. Plus subscribers also get access on mobile platforms (phones and tablets) while free users are limited to desktops and notebooks.

That is about to change. This summer the company plans to offer a selection of ad-supported full TV episodes on mobile devices on its free platform. That opens up new ad opportunities as well and the company overall is adding ad-buying options including:

  • In-stream purchase unit: This unit will enable consumers to make an order for pick-up or delivery without ever leaving the Hulu environment. Pizza Hut will be the launch partner for this service.
  • Cross-platform interactive ads: The interactive experience will be expanded to mobile devices with Corona Beer as the launch partner.

Selling ads may not be as attractive a business model as selling subscriptions, but mixing the two gives Hulu flexibility and tremendous room for growth. Netflix sells no ads while subscription services like SiriusXM (NASDAQ: SIRI) have proven that it's possible to offer a premium-subscriber experience while still selling ads. Hulu serves most of its ads to non-paying customers so it does not have to be as protective of the user experience because people will put up with more ads when they are getting something they can't get anywhere else for nothing. 

Hulu has original shows?

Both Hulu and Netflix offer broadcast quality original programming, though Netflix gets a lot more attention with its shows. Netflix has House of Cards, Orange Is the New Black, Arrested Development, and a few others while Hulu has some shows starring famous people that have not really cracked the public consciousness. The company plans to change that too as it plans to triple its marketing spend to grow awareness for, and interest in, Hulu Originals.

"It's not enough for us to simply invest in acquiring and producing great shows.... We want to make sure viewers know where to find them," Hopkins wrote.

None of Hulu's programs have broken out in a big way yet, but they might sweeten the pot for those considering a membership.

Hulu is a surprise success story

It's hard to judge Hulu with the company not being obligated to report revenue, but it appears Hopkins and his team have found a way to be competitive with Netflix without being drawn into "who has the bigger purse" battle over content. Because Hulu is owned by Comcast (NASDAQ:CMCSK) (which owns NBC), Walt Disney (NYSE:DIS) (which owns ABC), and Fox (Nasdaq: FOX), it's likely the service should be able to maintain its deal for recent episodes of shows from those networks without having to battle with Netflix or Amazon (NASDAQ: AMZN). Those network relationships also give Hulu access to talent (like Seth Meyers) and it's certainly possible that a buzzy show or even a hit could draw in significantly more eyeballs, adding to the ad inventory and maybe the subscriber base.

This is good news for a company that has seemed adrift for much of its existence and was shopped for sale twice. Hulu has built an interesting and adaptable revenue model that should grow as advertisers shift more money online. Having a nearly 50-minute engagement time is stunning. And while the brand may never have the same sizzle as Netflix, it seems well on its way to being established as an alternative that could see huge leaps in its subscriber base if TV users drop cable subscriptions but want timely access to recent shows. 

Your cable company is scared, but you can get rich
With so many alternate ways to consume content, you know cable as we know it is going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends, Netflix, and Walt Disney. The Motley Fool owns shares of, Netflix, Sirius XM Radio, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers