3 reasons why Hulu's 'under $40' a month cable TV competitor could be a game changer

On Wednesday, Hulu CEO Mike Hopkins revealed a bunch of details about the company’s upcoming live TV service, a “under $40” per month competitor to cable TV.

“Hulu Live” will work much like a regular cable or satellite TV package, except that it will be delivered over the internet to your smart TV, phone, tablet, and so on.

The big question was whether Hulu’s product would be able to make a splash in a 2017 streaming TV market already crammed with the likes of AT&T, Dish, Sony, and perhaps YouTube, and Amazon.

But based on the details Hopkins shared Wednesday, Nomura/Instinet analyst Anthony DiClemente thinks the answer is a probable “yes.”

In a note on Thursday, DiClemente wrote that Hulu’s new service would likely benefit from “strong subscriber growth,” and that he now sees upside to his estimate that it could get roughly 550,000 subscribers in 2017.

Here’s a rundown of the factors DiClemente sees leading to success for Hulu:

  • Attractive price: Hopkins said the service will be less than $40 per month, which is not a promotional price (unlike rival AT&T’s DirecTV Now initial release). This includes Hulu’s current $7.99 ad-supported on-demand product, which subscribers will get for free. “Though a final price has yet to be announced, we believe that at $39.99 month the service will be attractive to a large subset Hulu’s current 10-12 million SVOD subs, as the incremental cost will be $7.99 below the retail list price,” DiClemente wrote.

  • A lot of content: Hulu announced Wednesday that CBS will be in the package, adding to content from Disney, Fox, and Time Warner. NBCU isn’t on board yet, but Hulu seems to believe it will be on there. “In our view, the seamless integration of Hulu’s linear content with its SVOD product presents a compelling content proposition that is largely unmatched across [competitors],” DiClemente wrote. Hulu also says it will have the “vast majority” of local affiliate stations signed on, a problem that has plagued some competitors like AT&T’s DirecTV Now and Dish’s Sling TV.

  • Industry-leading features: In his presentation, Hopkins highlighted the availability of a cloud-based DVR, something which competitor DirecTV Now doesn’t yet have. Also, given Hulu’s expertise in the on-demand world, DiClemente is confident Hulu Live “will provide subscribers seamless integration between live, on-demand, and recorded content.”

The question marks

Hulu will enter a bloodbath in the streaming TV market in 2017. Besides Dish’s Sling TV, Sony’s Vue, and AT&T’s DirecTV Now, YouTube is working on its own package, and Amazon is rumoured to be doing the same.

To compete, Hulu will have to nail two things: content selection and technical performance.

What remains to be seen is exactly how robust Hulu’s channel lineup will be.

While AT&T’s DirecTV Now initially offered a whopping 100+ channels for $35 dollars per month, that tier will begin to cost $60 per month on January 9. AT&T’s standard $35 dollar option will include 60+ channels. Can Hulu do better than that with its “under $40” tier?

The other big question for Hulu’s service will be technical performance. The two big names in the space, Dish’s Sling TV and AT&T’s DirecTV Now, have been plagued with technical issues, as has Sony’s Vue to some extent — though Vue reportedly has a much smaller subscriber base than Sling. There is room for Hulu to make a dent on this factor.

But the final question for Hulu is, with all the competition, can the company actually make money on this?

“Profitability remains a question mark,” DiClemente wrote. “Though Mr. Hopkins did not comment on a timeline to free cash flow profitability, he clearly ruled out the possibly of Hulu losing cash in perpetuity.” That said, DiClemente sees the “aggressive” sub-$40 price point as a sign that “profitability is likely not a near-term event.”

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