Hulu has been aggressively acquiring new content over the past year. It paid $160 million for the rights to Seinfeld, has reached several new contracts with the likes of FX and AMC, continues to pump out new original series like Difficult People, and most recently, it struck a contract with Epix to stream its movie catalog.
The Epix deal was announced just hours after Netflix (NASDAQ:NFLX) said it would pass on renewing its contract with the movie network partially owned by Viacom. Netflix is instead focusing on content to which it can acquire the exclusive streaming rights. With the addition of movies like The Hunger Games series and the James Bond films, Hulu is becoming a formidable competitor to Netflix not just for TV buffs, but for movie watchers as well.
Should Netflix be worried?
Netflix has over 42 million subscribers in the United States, and most are used to a revolving catalog of films. Comparatively, Hulu has 9 million subscribers to its Hulu Plus service. Despite Hulu growing its user base about 50% in the last year, Netflix has continued to add millions of new subscribers. Over the past year, Netflix has added about 6 million U.S. subscribers.
Netflix credits its continued subscriber growth largely to its growing slate of original series and comedy specials. It also says originals are its most cost-efficient programming on a price-per-hour-watched basis. It's no surprise that Hulu and other streaming services have taken a similar approach to attract new subscribers.
While Hulu hasn't had any hits like House of Cards or Orange Is the New Black that will compel people to subscribe, it has produced several shows worth watching if you already have a Hulu subscription. By adding more content that people are familiar with, like the Epix catalog and Seinfeld, it could draw more people to subscribe. Hulu already has a large audience to advertise its subscription service to because of its free-tier that streams recently aired TV episodes.
More subscribers could create a domino effect, generating more buzz around Hulu's original series. That buzz could generate even more subscriptions for Hulu and make the choice that much harder for people deciding between Hulu and Netflix.
Hulu working on other benefits
Hulu isn't only working to provide its subscribers with more content, it's also looking for other ways to provide value. It just launched an ad-free version of Hulu Plus, which costs $12 per month -- just $4 more than a regular subscription. Many people have gotten so used to commercial-free streaming from Netflix and others that they wouldn't even consider subscribing to Hulu because of the commercials. This opens the door for Hulu to win those viewers back.
Additionally, Hulu is partnering with Showtime to bundle a Hulu Plus subscription with a subscription to the premium network's new streaming service for just $17 per month. As a stand-alone service, Showtime charges $11 per month, so subscribers will save $2 if they bundle them together. This makes Hulu even more appealing for people already considering Showtime as their main streaming service.
But that non-exclusivity could come back to bite it
Even though Netflix dropped Epix, Hulu's contract with the movie network won't necessarily move the needle on subscribers. Amazon currently has a contract with Epix to stream the same catalog of movies through its Prime Instant Video. And while Amazon doesn't offer next-day episodes, it does offer free two-day shipping.
If things stay as they are, though, Hulu could still see significant benefits from users looking to supplement their cable subscriptions. The problem is, now that Netflix is out of the picture, cable networks are more likely to negotiate deals with Epix.
Comcast, aco-owner of Hulu, has neglected to carry Epix because of its contract with Netflix. The same is true of several other major pay-TV providers. If Comcast starts offering Epix's catalog in its Xfinity streaming service, it would have a negative effect on the impact of Hulu's deal.
Cord cutters have more options
The growing number of SVOD services are giving cable subscribers more flexibility to cut the cord. Netflix and Hulu are at the top of the list for cord cutters to get their TV and movie fixes, and it wouldn't be a surprise to see significant overlap in both subscriber bases. As such, Hulu isn't so much a threat to Netflix as it is a complement.
That may change in the future, but if a decision must be made, it still comes down to their core strengths. Netflix has a growing catalog of acclaimed original series. Hulu offers access to episodes the day after they air on TV. Until Hulu starts competing with Netflix's originals, it's not a significant threat.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns and recommends AMC Networks 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.