Hulu's TV Model Is Beating Netflix Inc. in This Key Area

Mindy Kaling and Cecily Strong at the Hulu upfronts last month. Source: Hulu.

Netflix  (NASDAQ: NFLX  ) doesn't earn even half what Hulu gets per subscriber. Fool contributor Tim Beyers says that single metric may explain why onetime Hulu suitor Peter Chernin agreed to invest $500 million with AT&T (NYSE: T  ) on a new streaming network.

How much does Hulu earn? The network entered last month's "upfronts" meeting with advertisers with 6 million subscribers. Last year, they accounted for about $1 billion in revenue. Dividing the two figures results in an estimated $166.67 per subscriber annually, a nice premium over the $95.88 it costs for a full year of Hulu Plus.

Contrast that with Netflix, which finished the first quarter with 46.14 million paid members generating $3.749 billion in streaming revenue over the trailing 12 months. Dividing those two figures results in an estimated $81.25 per member each year. No wonder Netflix is raising prices.

What should investors take from all this? First, Hulu may be better off than we think. And second, it's possible to create a successful streaming network that still serves ads. You can bet that broadcasters under assault from the likes of Aereo are taking notice, Tim says.

Now it's your turn to weigh in. Do these figures convince you that Chernin is right to team with AT&T to create a potential rival to Netflix and Hulu? Please watch the video to get the full story and then leave a comment to let us know your take, including whether you would buy, sell, or short Netflix stock at current prices.

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  • Report this Comment On May 19, 2014, at 11:38 AM, jbugg wrote:

    Hulu's service pales in comparison to Netflix's. Subscribers to Hulu still have to sit through commercial, while Netflix subscribers get the perfect viewing experience. Obviously, Hulu makes more per subscriber, but it the end of the day, people are going to prefer to pay the Netflix premium to get the best service and Netflix will likely prevail. Netflix also offer a much larger content base. Hulu's one advantage is getting current content as opposed to one year delayed.

  • Report this Comment On May 19, 2014, at 11:41 AM, bforeman wrote:

    Hi Tim. Really interesting take, but I think your #s are a bit misleading ($1B revenue / 6M subs = $166 ARPU). Hulu's user #s responsible for the $1B are actually much higher than 6M. The $1B in revs is driven by paid subs + free visitors. The true denominator would drive their ARPU way down. However, Hulu's proven ability to convert these free users into (higher revenue generating) paid subs might lead to the same conclusion.

  • Report this Comment On May 19, 2014, at 12:38 PM, jb757 wrote:

    Has the evening traffic share changed any in Hulu's favor? Nope.

  • Report this Comment On May 19, 2014, at 1:25 PM, imyselfandme13 wrote:

    tim, this article makes no sense.

    free hulu has a userbase of roughly 10M. that's in addition to the 6M hulu plus users.

    so plus members contribute a little more than half to the 1B in revenue from their member fees (6M*95.88 = $575M). in actuality, they probably contribute more as they ALSO get ads.

    the 10M users free users have an ARPU of $42. ($425M / 10M).

    or, looking at it another way, $1B / 16M = $62.50 ARPU average.

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