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Why Netflix’s Subscription Streaming Competition Is Increasing

Shirley Pelts

Will Time Warner Buy a Stake in Hulu? Key Analysis

(Continued from Prior Part)

Media companies moving from Netflix to Hulu

On November 12, 2015, the Wall Street Journal reported that Hulu is in talks with Time Warner (TWX) to sell a stake to the media giant.

We discussed in the previous part of this series how Hulu has reinvented itself and is aggressively pursuing content this year. Some content providers are moving from Netflix (NFLX) to Hulu, including 21 st Century Fox (FOXA) and Epix Cable.

For media companies, content licensing is an excellent means of revenue. But at the same time, SVOD (subscription video on demand) providers like Netflix have proven to disrupt the pay-TV industry. They have accelerated the cord-cutting phenomenon.

But competition in the US SVOD industry is increasing. In October, Alphabet’s (GOOG) YouTube launched an online subscription-based video service, YouTube Red, priced at $10 per month.

Netflix announced its 3Q15 earnings on October 14, 2015. It posted revenues of $1.7 billion in 3Q15, a rise of 23% over its revenue in 3Q14.

However, the company’s net additions of 0.88 million US members in 3Q15 were disappointing. From eight analysts’ estimates, Bloomberg forecasted an average of 1.3 million net additions in 3Q15. Netflix’s net additions in 3Q15 completely missed this estimate. The 0.88 million net US additions also missed the company’s 3Q15 internal estimate of 1.2 million net additions.

But, as the above graph indicates, Netflix recorded a smaller rise of only 2% in its domestic memberships in 3Q15. This was one percentage point lower than the same quarter last year.

Could Hulu’s service affect Netflix?

Netflix has stated that lower net additions of US members were due to banks’ introduction of new credit and debit cards. However, Netflix may have been unable to attract new subscribers because its competitors, Hulu, CBS (CBS) All Access, and HBO Now (TWX), are offering better content. Plus, Hulu is offering different price tiers for its online video subscription service—$7.99 for an ad-supported service and $11.99 for ad-free service. CBS All Access is cheaper than Netflix at $5.99.

As content providers move from Netflix to Hulu, better content could determine better service. Netflix makes up 0.87% of the PowerShares QQQ Trust, Series 1, ETF (QQQ).

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