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Hulu Sub Growth a Positive Sign, but Questions Linger Ahead of Disney-Fox Deal

Hulu’s accelerating year-over-year subscriber growth has brought it to the 25 million milestone. But continued questions linger about the platform’s profitability and programming, particularly as Disney looks to further its own streaming ambitions following the integration of Fox’s entertainment assets.

The 48% jump from the prior year outpaces Hulu’s 40% gain in SVOD and live-TV subscribers in 2017. That growth “proves the investments that their owners are making is worth it,” said Brett Harriss, a research analyst at Gabelli & Company.

But he emphasized that the video landscape is “dramatically more competitive.” Now that signing up for — and canceling — subscription streaming services is easier than ever, there’s higher potential for subscriber churn.

“If you were Viacom in 2010, you woke up every morning and knew you had 100 million subscribers,” said Harriss.

Hulu’s estimated yearly losses are around $1.5 billion; Netflix’s expected negative free cash flow for 2018 hovered at about $3 billion. Some argue that since much of Hulu’s licensing expenses are going back into the pockets of its media-conglomerate owners, it’s all a wash. (Disney will have a 60% stake, post-Fox merger; Comcast owns 30%; AT&T owns 10%.)

But “the best businesses in the world,” said Harriss, citing Apple, Google and others, “have been able to grow while being profitable.” For Netflix and Hulu, that path has been more difficult.

Disney noted higher losses at Hulu in Q4 2018 due to higher programming, marketing and labors expenses, though those were offset by increased subscriber and ad revenue.

And Disney CEO Bob Iger has nodded toward the opportunity for increased programming investments in Hulu once the Disney-Fox merger goes through.

“We aim to use the television production capabilities of the combined company to fuel Hulu with a lot more original programming, original programming that we feel will enable Hulu to compete even more aggressively in the marketplace,” he said on the company’s early November earnings call.

There’s been speculation that in the wake of the merger, the resulting leadership shuffle may nudge execs toward having a heavier hand in Hulu’s strategy and programming. Of the 21st Century Fox-to-Disney management changes so far, Peter Rice has been tapped as chairman of Walt Disney Television, and Dana Walden has been named the chairman of Disney Television Studio and ABC Entertainment.

John Landgraf, FX head, told Variety in September that FX would have to “to figure out a way to support and enable the success of that adult streaming service,” likely referencing Hulu, which has been positioned to be a more grown-up platform vs. the upcoming Disney+ standalone service.

The anticipated late 2019 launch of the Disney+ means that more family-friendly fare, including shows and movies from Pixar, Marvel, Lucasfilm, National Geographic and Disney, will be housed on the same service.

Netflix’s Golden Globe wins are a confidence-booster for its billions in content investments. Hulu’s subscriber base, even with the updated figures, still aren’t half of Netflix’s 57 million U.S. subscribers. Disney+ will be starting from scratch later this year, putting it far behind the rest.

But Iger has previously indicated that there is potential for Hulu, Disney+ and ESPN+ to be bundled together. More details on Disney’s streaming strategy are expected to land at its investor day in April.

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