Can you hear the footsteps, Netflix (NASDAQ:NFLX)?
The same week that Hulu took the wrapping off its $180 million purchase of the entire Seinfeld series, making all episodes available for streaming, the company also nailed down a deal to bring CBS' (NYSE:CBS) Showtime to its viewers for the lowest price around. For just $9 per month, Hulu subscribers will have access to Showtime's catalog of movies and hit shows like Homeland and The Affair.
That beats the $11 per month fans will pay for Showtime streaming on a stand-alone basis when it becomes available in July from services such as iTunes. It's also cheaper than the price of a subscription through a cable or satellite service, which starts around $10 per month. Hulu is reportedly subsidizing the gap in subscription fees in order to draw new subscribers and throw a bone to existing users.
The rub with the Hulu deal is that viewers will have to also fork over $8 per month for the standard Hulu subscription. People who are only interested in Showtime are better off going through iTunes or another direct route.
The deal with CBS for Showtime not only makes Hulu a cheaper option than cable, but also definitively separates the service from Netflix: The leading Internet TV provider could never pull off such a deal because it is set up much differently from Hulu.
Hulu is a joint venture of Fox, NBC, and ABC, and streams current episodes of TV shows to its viewers; Netflix does not. This is the first such deal Hulu has made with a premium network, and if it leads to more, it could make Hulu the holy grail for cord-cutters. HBO would be the biggest prize of the premium networks, but Showtime with its solid package of original programming is a respectable No. 2 in the space.
With only 9 million subscribers, Hulu pales in comparison in Netflix, which has over 40 million paying members domestically. Showtime counts about 23 million subscribers, or nearly a quarter of the pay-TV universe. It's difficult to predict the number of Hulu subscribers that will add Showtime to their package. However, the network's popularity, with more than twice as many subscribers as Hulu, is likely to drive loyalty to Hulu and increase its subscriber base, especially taking into account the relatively low price point.
What does it means for Netflix?
Despite Hulu's play for growth with the Showtime partnership and the Seinfeld deal, there are reasons to believe that it is not putting Netflix in its crosshairs. Netflix CEO Reed Hastings has said time and again that he sees linear TV (i.e., cable and satellite) as his company's main competition, rather than other streaming services such as Hulu.
Indeed, Hastings has saluted services like Hulu and HBO Now, insisting that they represent a great value versus the traditional cable bundle. Hastings is the cord-cutter's biggest cheerleader, and he views the decline of traditional pay-TV as a boon for Netflix even if other companies benefit as well.
Netflix's subscriber base has grown steadily alongside those of Hulu and Amazon.com's Prime, so his theory seems to be vindicated. With about 100 million subscribers, the pay-TV industry represents the real prize to be won in this battle. The streaming services aren't fighting for members with each other; they're fighting with the cable giants.
Hulu is also different enough from Netflix that it likely doesn't pose a serious threat. First, Hulu shows advertisements to its viewers, which Netflix does not. Hastings has said repeatedly that Netflix subscribers do not want ads. Second, Hulu has a much different set of strengths, which lie mostly in current network TV shows, as opposed to Netflix, which has a much larger library of movies and its own original programming.
That means Hulu and Netflix can be complementary services, and a gain for one is not necessarily a loss for the other. I'd expect a boost in subscribers from Hulu's latest scores, but that doesn't spell bad news for Netflix.
Jeremy Bowman owns shares of Netflix. The Motley Fool both recommends and owns shares of Amazon.com and Netflix. 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.