There's no question that the coronavirus pandemic has been a boon for the video streaming industry. Subscriptions for services like Netflix (NFLX 0.12%) have surged, and third-party aggregators like Reelgood have also reported a sharp jump in streaming time.
That trend isn't a surprise given the stay-at-home mandates and advisories during the crisis, but one well-known streaming brand seems to be missing the party. Walt Disney's (DIS 0.39%) Hulu, born as a joint venture of the major broadcasters, has long lagged Netflix and Amazon Prime in subscribers, even though the service has a slate of strong content -- it offers television programs straight from the broadcast networks, and has taken home an Emmy award for outstanding drama for The Handmaid's Tale, something Netflix has yet to accomplish. Its longtime status as a joint venture made it something of a forgotten stepchild in the streaming industry, but that was supposed to change when Disney took majority control with its Fox deal last year.
Former Disney CEO Bob Iger touted the potential of Hulu, and planned to infuse it with new original programming and launch the service internationally. He also liked the service's appeal to young adults, which advertisers favor.
However, more than a year after the Fox acquisition, Hulu is starting to look forgotten again. In its recent earnings call, Disney announced that it would launch an international streaming service under Star, an Indian TV brand it acquired in the Fox deal, rather than Hulu. And Hulu's growth has been underwhelming during the pandemic, especially considering we're in a streaming boom.
The streaming service, which is only available in the U.S., added 5.1 million subscribers in the first half of the year, growing from 30.4 million to 35.5 million. That figure includes ad and ad-free tiers of Hulu, as well as subscribers to Disney's recently launched bundle of Disney+, ESPN+, and Hulu, and Live TV packages that come with Hulu. It's not necessarily bad -- Netflix saw similar subscriber growth in the U.S. in the first half of the year, despite having about double the market penetration of Hulu. But Hulu seems to have missed its best opportunity to pick up market share, and with the pull-forward effect from the pandemic, subscriber growth is likely to slow substantially now.
What's happening with Hulu? Here are a few explanations.
Disney+ has stolen the show
Disney+ has become the juggernaut in Disney's streaming arsenal. The service has brought in more than 60 million members since its launch last November, and it's naturally where Disney is investing most of its streaming resources. It's the platform that is hosting highly anticipated releases like Hamilton and Beyonce's Black is King, and will continue to get that kind of marquee content.
The platform has shattered the company's expectations, as management originally forecast it to reach 60 million-90 million subscribers globally by 2024. It hit that range in less than seven months.
But Disney+'s success leaves an even greater question mark hanging above Hulu, as Disney seems to be getting a better return on its investment and overall brand lift from Disney+, a global platform, rather than Hulu, which is only available in the U.S., and whose brand identity seems muddled.
Disney restructured Hulu at the beginning of the year, making what was an independently operating business a cog in Disney's direct-to-consumer segment. Among the changes was the departure of Hulu's CEO and the loss of Marvel shows on Hulu that moved to Disney+. As part of Disney's larger direct-to-consumer business now, Hulu is unlikely to get the resources and attention that Disney+ does, increasing its chances of underperforming.
It won't play internationally
Earlier this year, Iger said that Hulu would likely launch internationally next year; however, with the plans to make Star its new international streaming service, the prospect of Hulu going abroad now seems dubious. Launching two separate streaming services on top of Disney+, which is still expanding around the world, just doesn't make sense. And comments from CEO Bob Chapek on the earnings call seemed to put the kibosh on any kind of Hulu International.
Chapek explained on the earnings call that Hulu aggregates third-party content, while the Star service will host Disney-owned content from ABC Studios, Fox TV, FX, and other such sources. Chapek also added, "And Hulu also, I must say, has no brand awareness outside of the U.S., and nor does Hulu have any content that's been licensed to it internationally." That shows that Disney would essentially be starting from scratch if it took Hulu outside of the U.S. Additionally, Hulu's ad business won't transition easily to international markets.
Looking at those reasons as well as Star's strength in India, it's clear why Disney is elevating that brand and not Hulu.
Is it giving up on Hulu?
Hulu was launched in 2008, but the brand has been a perennial money loser. It was expected to lose $1.5 billion last year, though now that it's part of Disney its results are included in the direct-to-consumer segment and not broken out on an individual business.
Hulu has a number of assets, including a strong advertising business, a much higher average revenue per user than Disney+, and a broad content slate, but the brand exists in a corporate no-man's land. Disney has agreed to take full control of Hulu in 2024, buying out Comcast's stake for at least $5.8 billion, but its future seems uncertain after the breakout growth at Disney+ and the Star announcement.
With Hulu's growth likely to plateau following the lockdown period, Disney may want to consider other options for the tangential streaming service, such as selling it or combining it with a premium version of Disney+. As it stands now, carrying the loss-generating business with no significant plans to invest in it or expand it looks like a mistake.