This article was updated on April 2, 2015. 

While Netflix (NASDAQ:NFLX) and Hulu offer similar services on a very broad level, one has become a major disruptive force for the entertainment industry while the other has become a bit player. Both offer over-the-top digital streaming of television shows and movies and both create original content, but what was once a battle of two equals has seen Netflix pull far ahead of its rival.

The two companies do not do exactly the same thing but are clearly competing in the same space. Hulu sells advertising to support offering some free content on its website while also selling premium subscriptions through its Hulu Plus service. Netflix is solely a subscription play with all of its revenue coming from the monthly dues paid by subscribers to its streaming service and, to a lesser extent, its DVD subscription service. 

Though their business models are slightly different, both companies are clearly going after the same eyeballs and competing for the same subscribers and Netflix has been winning the battle by a wide margin.

Hulu Netflix

The Netflix and Hulu wesbites. Source: Author

How are both companies doing?
Hulu is jointly owned by Twenty-First Century Fox (NASDAQ:FOX), the Walt Disney Co. (NYSE:DIS), and Comcast's (NASDAQ:CMCSA) NBCUniversal. Because the company is not publicly traded it does not have to release financial data on the same schedule Netflix does, but the company has periodically shared some results on its blog. CEO Mike Hopkins wrote in a blog post in December 2013 that the company would reach $1 billion in sales for 2013, up from $695 million in 2012. The company has not released any 2014 numbers, but they were expected to be higher since the company added Peter Naylor, a respected sales veteran as senior vice president of sales in February 2014.

"When you think about the fact that Hulu first launched out of beta in 2008, it's quite an impressive feat to scale the business from zero to $1 billion over the course of just six years," Hopkins wrote.

While that may be true, it's not nearly as impressive as what Netflix has accomplished in the seven years since it launched its streaming service. 

Netflix had $1.67 billion in revenue in 2009 and has grown steadily since then, reaching $5.5 billion in 2014.  The company also has a huge lead in paid subscribers. In a blog post in April 2014, Hulu claimed 6 million paid subscribers. Netflix, in its most recent financial results press release, which covers the fourth quarter of 2014, claimed 37.7 million domestic paying subscribers and 16.78 million internationally.

That difference is important because while Hulu does take in revenue from ad sales, 6 million subscribers at the company's subscription price of $7.99 a month equals just over $575 million a year -- more than half of total revenue. With Netflix so far ahead in subscribers, it's hard to see how Hulu can bridge the revenue gap between the two companies.

Hey, big spender
Netflix has built up a huge subscriber base and part of how it has done that is by spending big on content. The company has never detailed exactly how much it spends on content nor does it break down spending between licensing existing shows and creating originals. In April of 2013, however, the company released a document which pegged its annual content spend at $2 billion, TechCrunch reported. Some have pegged the number even higher as FierceWireless estimates its 2014 content budget could be as high as $4 billion, though that number seems high given overall revenue.

In an October 2013 earnings call Netflix Chief Content Officer Ted Sarandos said about 10% of the overall content budget went to originals, Variety reported. If the $2 billion to $4 billion total content-spend estimates are correct, that would mean the company has $1.8 billion-$3.6 billion to spend on licensing deals and $200 million-$400 million for original shows including House of Cards, Orange is the New Black, Hemlock Grove, and its untitled talk show project with Chelsea Handler that is slated to launch in early 2016.

Hulu does not disclose how much it spends on acquiring or creating content, but it's much less than Netflix invests, though it is increasing. Hopkins did not provide numbers, but he shared some details in an April blog post.

It's not enough for us to simply invest in acquiring and producing great shows...we want to make sure viewers know where to find them – only on Hulu and Hulu Plus. To that end, over the next year, we will more than triple our content marketing spend to grow awareness for, and interest in, Hulu Originals.

While Netflix is looking to match HBO or AMC Networks with its high-end original programming, Hulu is going after niches with its original series, including Deadbeat, The Awesomes, Quick Draw, and East Los High.
 
Netflix has already won
Hulu simply doesn't have the budget to compete with Netflix on original content or in making licensing deals. It's also hard to imagine that even if it produced a hit original that it could bridge a gap of around 42 million subscribers. In this fight, Netflix is Coke and Hulu is, at best, Royal Crown Cola (or, at worst, store-brand cola).
 
Both companies still have room to be successful as Hulu's ownership assures it access to some programming that people will want to see. Netflix, however, has moved up in weight class and its rival is the concept of subscribing to cable overall.
 
If Netflix can cause more people to cut the cord and drop cable, that could actually benefit Hulu. Netflix may be the No. 1 streaming content service, but if people drop cable -- which NPD pegs will cost $123 per month on average by next year -- it's possible that adding a $7.99-a-month Hulu Plus subscription on top of an $8.99 Netflix one will become common.
 
So, while Netflix has won this battle, if it wins the war, Hulu could be victorious as well.

 

Daniel Kline has no position in any stocks mentioned. He is a Netflix subscriber who rarely remembers to use the service. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.