Hulu's content acquisition spree could help the service acquire millions of additional subscribers over the next several years.
The streaming video site -- which is owned by subsidiaries of Walt Disney Co DIS, Comcast Corporation CMCSA and Twenty-First Century Fox Inc FOX FOXA -- has acquired all 180 episodes of "Seinfeld." More importantly, Hulu has also shoehorned its way into Netflix, Inc. NFLX territory by acquiring the exclusive streaming rights to "Fear the Walking Dead," AMC Networks Inc's AMCX long-awaited spin-off to "The Walking Dead." This is the first new AMC show that won't be streamed on Netflix.
"Hulu is making a big push for content," Rich Tullo, director of research at Albert Fried & Company, told Benzinga. "What's interesting to me is they just outbid everyone for Seinfeld. Now they're doing an exclusive deal with AMC, which is very interesting to me because AMC had been in bed with Netflix on virtually everything."
Wedbush analyst Michael Pachter said that every time one service gets an exclusive deal, "Everyone else gets nothing."
"This means Hulu paid up," Pachter told Benzinga.
Getting To Scale
Hulu also announced that it has nine million paying subscribers -- a 50 percent increase from April 2014. It's small potatoes in Netflix's world, but it is far and away the second-biggest online-only streaming video service. (Remember that most of HBO's subscribers come from cable.) Hulu is also limited by the fact that it is only available in the United States and Japan. Its growth trajectory could be much higher when it launches in other countries.
"It wouldn't take much to get them to scale," said Tullo. "Maybe it's the Seinfeld content, maybe it's the Walking Dead content."
Tullo said that the current "Walking Dead" series is watched by 20 million people over the course of a week. He speculated that, over time, the spin-off could add five to 10 million subscribers to Hulu Plus. In breaking down the numbers, Tullo estimated that "Fear the Walking Dead" would follow in the footsteps of "Better Call Saul" and receive roughly 1/3 the viewers of its predecessor in primetime.
"If it's any good, it'll probably do a third [of The Walking Dead], which will be four million viewers in primetime, and probably double that with video on demand," said Tullo. "If Hulu provides a better experience than AMC over-the-top and Xfinity, they'll capture the lion's share."
Who Would Pass This Up?
Tullo doesn't think that Netflix chose to pass on a deal to stream "Fear the Walking Dead." He suspects that Hulu offered better terms or simply provided a way for AMC to diversify its content distribution.
"In the past I've noticed that new programming is difficult to launch when you give Netlflix the exclusive because they do such a great job of marketing," said Tullo. "They tend to capture audience ahead of the originator of the content."
This might make investors wonder about Fox's decision to sell "Gotham" to Netflix before the first episode aired on TV.
"That's part of what we've been saying," Tullo added. "Gotham got Netflix'd. It's not gonna be on until after the season is over. But I think when the consumer understands that a show is gonna be on Netflix at some point, they tend to warehouse their viewing until it's on Netflix. Gotham has been running 3 - 4.5 million viewers an episode. Then you contrast that with Empire, which is not on Netflix, which has posted really strong [ratings]."
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
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