The challenge is Netflix’s huge audience size, which, according to PwC research reported by the FT, is approaching the size of the entire US pay-TV market. A survey of 2,000 Americans in October found that 73% subscribe to pay-TV packages, while at the same time, 73% also subscribe to Netflix.
Following Disney’s bid to buy $66bn of assets from 21st Century Fox’s entertainment business, the owner of Mickey Mouse could soon become the controlling stakeholder in Hulu.
Bob Iger, CEO of Disney, noted the importance of the streaming market on a conference call last week, when he announced the bid. Direct-to-customer-streaming services, he said, are “vital” to the company’s future, its “highest priority”.
He added that Hulu is a great opportunity to expand in the DTC streaming space; “having control of it will enable us to greatly accelerate Hulu into that space and become an even more viable competitor to those that are already out there.”
However, Netflix’s lead over Hulu in the US is estimated to have increased to 37m, as it boasts a total US subscription base of 54m.
Hulu began as a response to the ad-funded model seen in YouTube, a way for traditional media players to keep up with the digital player. More recently, it has become a competitor to Netflix and Amazon, both of which are pouring enormous sums into their original content.
While Disney may want to become more like a digital player, to avoid the damage from a growth in cord-cutters, one of its struggles might prove to be the divide of content it can sell to pay-TV players and what it can play online, according to Bloomberg analysis.
For instance, though it will have both ESPN and ESPN Plus (the digital platform), broadcast contracts relate to ESPN alone. Netflix’s relative simplicity, thanks to plenty of original programming, becomes a distinct advantage.
However, CNBC noted that Netflix will have to increase spending to remain competitive as it will struggle to fill the gap that will appear with the withdrawal of big Disney and Fox properties – Star Wars, for instance. On Disney’s side , the deal will provide a strong repertoire of content, from The Simpsons to X-Men.
One property that Murdoch is keen to keep hold of, however, is Fox News. The deal will likely take between 12 to 18 months to complete, as regulatory oversight will assess the impact of the deal on consumers and competitors.
Sourced from the Financial Times, Bloomberg, CNBC, Recode; additional content by WARC staff