Did Hulu Just Spend $80 Million for Nothing?

After failing to draw headlines for its original series, an exclusive syndication deal for “South Park” gives the budding streamer a way to stand apart.

Jul 14, 2014 at 5:03PM

Southpark

South Park is moving to Hulu. Credit: South Park Studios.

"I applaud Trey Parker and Matt Stone for embracing mediocrity." If there's a phrase that characterizes how fans seem to feel about South Park's move to Hulu, that's it.

Last week, South Park Studios inked a rich, multi-year licensing agreement that makes all 17 seasons of the crude comedy available to Hulu Plus subscribers. Viewers who'd rather not pay can still tune in free at the South Park Studios site or Hulu.com, but only for a limited time. The majority of South Park episodes move behind the Hulu Plus paywall on Sept. 24, when Season 18 premieres on Comedy Central.

Netflix (NASDAQ:NFLX) previously held the rights to stream South Park but failed to reup last May. Comedy Central parent Viacom (NASDAQ:VIAB) has since brokered a multi-year relationship with Amazon.com (NASDAQ:AMZN) for its Prime Video service. South Park apparently wasn't part of the deal, which left Hulu free to claim the prize.

Adding it up
Are fans really outraged by the move, or am I cherry-picking? Click here to see for yourself. You'll find the original blog post announcing the deal and, from what I can see, hundreds of mostly negative comments.

Investors should take note because the comments are specifically aimed at how Hulu does business. Most say they don't like that Hulu Plus includes ads when its key competitors -- Netflix and Amazon Prime -- are ad-free. International distribution is also an issue, according to many of the commenters.

For its part, Hulu says at its site that ads help to keep subscription costs low. I know that sounds trite, but it's actually a reasonable argument. Netflix had (and continues to have) a profitable DVD-by-mail service that produces revenue and profit for funding originals and international streaming expansion. Hulu has never been anything other than a streaming service.

And content is expensive. According to The New York Times, Hulu is paying in excess of $80 million for South Park. For perspective, Netflix paid $100 million to make two seasons of House of Cards. The difference, of course, is that South Park will continue to air on Comedy Central while Netflix is the exclusive home to House of Cards -- unless you want to pay to own the seasons on disc or via digital download.

Foolish takeaway
In the end, I see Hulu's South Park experiment and others like it as a litmus test. If viewers prove willing to pay up for premium streaming access while also stomaching ads, it would raise questions about the durability of Netflix's advantage as an ad-free supplier of TV and movies while confirming Hulu's business plan.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Netflix at the time of publication. Check out Tim's Web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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