Hulu announced that it added 8 million new subscribers in 2018, bringing its total customer base to 25 million across its subscription video on demand (SVOD) and live TV plans in the U.S. This marks a 48% year-over-year increase. It also gives Hulu more customers than the biggest pay-TV providers in the U.S., including cable giant Comcast (NASDAQ:CMCSA), which holds a stake in the company. 

Revenue showed significant improvement as well, with ad sales growing 45% in 2018 and topping $1.5 billion, a record for Hulu. While the company hasn't been as forthcoming about its losses, some estimate the annual shortfall to be about $1.5 billion.

The rising subscriber numbers are likely good news for Disney (NYSE:DIS), which has big plans in the streaming arena, and will soon own a majority stake in Hulu.

Check out the latest Disney earnings call transcript.

A woman wearing a red shawl and a white habit.

The Handmaid's Tale attracted hordes of new viewers. Image source: Hulu.

Most likely to succeed

There's little question that Netflix (NASDAQ:NFLX) is the 800-pound gorilla in the room when it comes to streaming. The company has more than 137 million subscribers worldwide, with that number growing every month. It has about 58 million customers in its domestic market, but as its penetration increases, growth is slowing. Over the previous four quarters, just 5.7 million subscribers were added in the U.S., a jump of 10% year over year. 

That pales in comparison to Hulu's 8 million new customers -- a 48% year-over-year increase, though those gains come from a much smaller base. Viewers are also spending more time on Hulu's platform, with the time spent per subscriber going up by 20% in 2018.

Hulu said it has more TV episodes than any other U.S. streaming service, expanding its on-demand library to over 85,000 episodes in 2018. It highlighted such programs as The Good Doctor, Killing Eve, The Orville, Superstore, and Grown-ish as contributing to its success and pointed out that it was "becoming the exclusive home to every season of beloved and current series like ER, Lost, King of the Hill, Family Guy, Bob's Burgers, Living Single, and Animaniacs." 

Another reason for Hulu's growth spurt is the performance of its original programming, which received a company-record 27 Emmy nominations in 2018. Castle Rock was the highest-performing new original program in 2018, and the second-highest performing Hulu original overall this year, behind only The Handmaid's Tale

Finally, its ability to provide a combination of broadcast, cable, and premium channel programming gave Hulu bragging rights as "the only place where viewers can watch full seasons of nearly all (80%) of this past year's Emmy-nominated programming."

Sissy Spacek and Andre Holland, in character in a scene, looking shocked.

Sissy Spacek and Andre Holland in a scene from Castle Rock. Image source: Hulu.

A changing of the guard

For those who haven't been following along, Hulu is currently jointly owned by Disney, Comcast, and Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA), with each holding a 30% stake, while AT&T (NYSE:T) has 10%.

The ownership percentages are set to change later this year, as Disney is nearing the finish line in its acquisition of Fox, which will boost that to a 60% controlling stake. The House of Mouse announced in December 2017 that it planned to acquire most of Fox's assets in a deal valued at $52.4 billion. A lengthy bidding war ensued, as rival Comcast tried to wrest the prize away from Disney. The cable giant dropped out of the process in July, leaving Disney well on the path to completing the acquisition.

Disney is working its way through the few remaining government approvals necessary to seal the deal, having already secured the blessing of European, U.S., and Chinese regulators. Once the deal is complete, there will be some big changes in store at Hulu.

A top priority

During the fiscal 2018 fourth-quarter conference call, Disney CEO Bob Iger noted that Hulu was one of the company's two "biggest priorities in fiscal 2019" -- with the other being the "successful completion and integration of our 21st Century Fox acquisition." Closing that deal plays into Hulu's future as well. In response to an analyst's question about Hulu's future, Iger said, "We aim to use the television production capabilities of the combined company to fuel Hulu with a lot more original programming, original programs that we feel will enable Hulu to compete even more aggressively in the marketplace ... I think we've got an opportunity to invest more in Hulu to grow its subs."

Previous spending on Hulu appears to be bearing fruit, based on its recent subscriber growth, shoring up Iger's case for continued investment.

 A contender

Disney has made no secret of its ambitions regarding streaming. The company launched ESPN+ earlier this year, which quickly topped 1 million subscribers. It also plans to launch a Disney-centric service later this year -- dubbed Disney+ -- which will include existing content from its Lucasfilm, Pixar, Marvel, and Disney studios. There are also plans to create original programming for the streaming service, which is expected to debut in late 2019.

It will take several years and a significant investment, but it won't be very long before Disney is ranked among the top streaming destinations -- and Hulu is an important and growing part of those plans.

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