Time Warner (TWX +0.00%) has been one of Hulu's biggest critics, claiming that the streaming service devalues cable by offering shows a day after they first air.
Despite its long-stated problems with the brand, it just spent $583 million for a 10% stake in the company. That does not mean consumers will see Time Warner content a day after it airs. The company won't be taking part in that aspect of Hulu's business. Instead it will offer channels including TBS, TNT, and CNN as part of a new live-streaming Hulu service.
That product remains a bit of a mystery (and a price has not been set), but it's an effort by Hulu's original partners -- Comcast, Disney, and FOX -- to offer something to people leaving cable without completely incentivizing them to do so.
It's a narrow tightrope to walk, and on this episode of Industry Focus: Consumer Goods, host Vincent Shen is joined by Fool contributor Daniel Kline to dig into why Time Warner has paid up to be part of a service it has been critical of in the past. They also discuss their own streaming usage and where the cable industry may be headed.
A full transcript follows the video.
This podcast was recorded on Aug. 9, 2016.
Vincent Shen: I want to ask you this: What is your preferred streaming video service: Netflix? Amazon? Hulu? Maybe Sling TV?
Daniel Kline: The funny thing is... So, I use Netflix. I pay for all three. I have Hulu and I have Amazon Prime, but I'm one of those people that got Amazon Prime because I buy things from Amazon. I can't say I've used their video service at all. I got Hulu to watch The Mindy Project six months ago and still have never used it because I'm halfway through the second season of Daredevil. I've traditionally been a big regular television full cable subscriber. I'm actually, when we move, going to give Sony's PlayStation Vue a try.
I've also tested Sling TV. What I don't like about Sling TV is it's limited. It's a skinny bundle, it's a great price, but the Sony package for -- I don't know, 49, it varies based on market -- you get about a hundred channels and it hits most of the things I would want. I'm going to be losing out on some of the regional sports and other things I would have paid for on cable, but when it comes to the pure streaming, that seems a good bet, and Netflix, the originals, it just has so much more stuff than anybody else does.
Shen: You are still a traditional cable subscriber?
Kline: I am until tomorrow technically.
Shen: OK. I've wanted to ask this and I find it was really interesting because with our first story, and here's the lead-in, this news came out last week, Time Warner taking over a minority stake in Hulu. We're kind of seeing these worlds blend together. In just the example you gave with your own personal experience, you are a traditional cable subscriber, but you had these other streaming services, and all of this is kind of coming together for your personal experience and personal consumption of all this content, too. Time Warner we've covered from several different angles over the past few episodes. They announced last week taking a 10% ownership position in Hulu for prices about, I think it was $580 million, so that values...
Kline: Yeah, $550- $580, somewhere around there.
Shen: Hulu valuation coming in about $6 billion. For anyone who isn't familiar with Hulu, just some quick backstory, the service started in 2008. It's a joint venture started by some media and entertainment heavy hitters. Think Walt Disney, 21st Century Fox, Comcast, NBCUniversal and now of course Time Warner. At the moment, Hulu has three offerings, but even that will be changing, we can touch in that later, has basically a free streaming option where you get to watch a full sleight of ads with that. You have a $7.99 per month subscription option with limited ads. Then if you want to pay full price, it's $11.99 completely ad free. The thing is, the key development with this Time Warner buyout, and it seems to me at least is the live streaming service that Hulu plans to offer 2017. Dan, how are these two companies, the joint venture owners thinking about this deal and the new service?
Kline: It's important to note that Time Warner is buying in only for the live streaming service. Time Warner has a big issue with the way Hulu operates now, which is they make current episodes of recent shows from its partners, not all shows because of ownership on the individual shows, but most Fox shows, most ABC shows, most NBC shows, you get 24 hours after a show airs, you can watch it and the last three or four episodes, maybe four or five in some cases on the $7.99 service and in some cases on the free service. Time Warner thinks that's undervaluing its programming, especially because the numbers are not big enough that it's a major advertising source.
Time Warner will not be contributing to that part of the service. What they're paying for is distribution. They see the amount of homes that have cable slowly getting smaller. Cable is dying, but it's going to take a long time at the current pace. What you have happening is they're paying this money so five years from now when these types of services, Sling and PlayStation Vue and the various cable networks, cable services not offering boxes but actually having pure digital, I think what you're going to see is by owning a piece of this, they guarantee themselves a place at the table. They're not going to have the contentious negotiations they have with the satellite providers over Sling or with Comcast every time rights to TBS and TNT and CNN come up. This is really just buying them access to homes as the cable role changes.
