Although media streaming has become increasingly popular in the past few years, it is important to understand how the over-the-top (OTT) providers, such as Netflix, Hulu and Amazon Prime have remained profitable in the ever-changing industry landscape. Netflix has become the top player in this industry for several reasons. But what has Netflix done that keeps its competitors, such as Hulu, from taking their subscribers? Many external forces are beginning to shape the streaming industry, including the rise of consumer “binging” and advertisement free television viewing, the threat of illegally shared streaming accounts, and the opportunity of global expansion. Looking at industry market leaders will help us to understand the impacts that these external factors create for streaming service providers
1. The Business of Binging
Consumers, millennials in particular, have become the power holders in their relationships with OTT service providers because of the multitude of options they have for choosing to utilize different streaming services. In fact, this industry is especially concerned with providing the content viewers want when they want it. Netflix is the market share leader in this industry for many reasons, and one of those reasons is that they get their subscribers addicted to watching their shows. And we mean addicted. More and more, consumers are choosing to binge watch their favorite television series. Netflix provides the best platform for consumers looking to watch an entire season in one sitting by providing an “all at once distribution model”. Netflix has also created new Netflix Originals and have signed new content contracts to drop entire seasons and shows all at once. This allows their subscribers to choose when to watch their shows and how many shows to watch in one sitting.
Approximately 37% of United States millennials use Hulu. Unlike Netflix, Hulu follows a content distribution plan much like original television offerings. They provide content on a weekly schedule, including their own original content. More than likely, Hulu follows this distribution plan because they are owned by traditional television companies. Although this method has worked well with television, it limits the control that viewers have on their own streaming habits, which can have a negative impact on engagement. Weekly releases of television shows give viewers an extended time between viewing sessions. This extended time increases the likelihood that consumers will discontinue watching a show. In the viewer’s eyes, it takes more effort to come back once a week for a long period of time to see their show rather than being able to watch multiple shows at once and finish an entire series within a matter of days or weeks.
Because the ability to binge can drive the engagement of streaming provider subscribers, over-the-top providers will want to understand the ways in which different content distribution plans may affect subscriber behaviors and engagements with their services. Once providers understand their options, they can pick the best option for meeting the needs of their subscribers to increase user bases and engagement of existing subscriptions.
2. Advertisements vs. No Advertisements
Content streaming companies have usually stressed the feature of their product eliminating ads. After all, these services are supposed to replace TV watching, thus limiting advertisements. So why is it that Hulu offers a plan that includes ads?
Hulu offers two different payment options; One that costs $11.99 per month, and another that for $7.99 with all of the same content, only with advertisements. Hulu has 2,000 advertisers alone, with 400 content providers. Netflix on the other hand offers three payment options each based on the streaming quality (standard definition, high definition, or super high definition) and number of screens (1, 2, and 4) for $7.99, $9.99, and $11.99 accordingly. However, Netflix users avoid about 160 hours of advertisements per year by subscribing. The fact that advertisements are shown through the base Hulu package could affect the number of users Hulu brings in. That being said, it is more likely for customers to choose Hulu over Netflix for the cheapest package, due to Netflix only offering standard definition. People would probably value high definition with advertisements over standard definition without advertisements.
Netflix is winning the subscription account coming in at 93.8 million subscribers worldwide. Hulu is quite a ways behind, but still easily holds the second place spot at 12 million subscribers. With those 93.8 million subscribers, Netflix rakes in $5.5 billion annually. Minus the $3.8 billion in costs with licensing, contracts, marketing, technology and administrative expenses, Netflix’s net profit is around $1.75 billion. That means that Netflix earns $18.66 per subscriber after costs. On the other hand, Hulu has total revenue of $2 billion. Even though Hulu is able to charge companies to display their advertisements, it still does not make them more profitable than Netflix in the long-run. However, it does create for a higher revenue per subscriber.
|Number of Worldwide Subscribers||Annual Revenue||Average Revenue per Subscriber (Before Costs)|
|Netflix||93.8 Million||$5.5 Billion||$58.64 per Subscriber|
|Hulu||12 Million||$2 Billion||$166.67 per Subscriber|
3. Consumers Sharing Accounts
With nearly everything at fingertips, it is easy to share our streaming account information. Whether it is with your family, significant others or roommates, sharing accounts has become both a growing concern and terrific marketing outlet for content streaming providers. It has been a primary topic in courts that password sharing is illegal, as it is a violation of the CFAA. However, lawmakers are not looking at this topic from two different perspectives: Accessing computers without authorization and accessing computers with authorization. In a Consumer Report survey, 46% of Americans admitted to sharing login information with people who were in different households. Because of this over-the-top providers could lose as much as $500 million due to illicit credential sharing. So what exactly are the rules of content streaming for major providers? And how strictly are they enforced?
With Netflix, the number of devices that can simultaneously be up depends on the membership plan. As of 2015, approximately 30% of Netflix subscribers shared their credentials. There is no official requirement, however, that users sharing the account must be part of the same bloodline. It seems as though there is a “silent law” in the content streaming industry that receiving credential information across multiple paths, such as from your boyfriend’s aunt is unacceptable.
With Hulu, only one screen and device can be pulled up at a time, which decreases the number of times credentials can be shared. Hulu’s specific content set-up may affect the number of subscribers, as the content streaming market varies by number in a household.
4. Global Over-The-Top Markets
When expanding globally, over-the-top providers can run into many obstacles and challenges. These obstacles include brand recognition, original content traction, local content authorization and specific country laws. It is essential that the providers do extensive research on the processes of expanding globally in order for the transition to be successful. And according to the facts, Netflix has done their research, whereas Hulu has not.
Not only is Netflix the leading streaming service in the United States, but they also lead their competitors in international subscribers. As of 2016, Netflix had 34 million subscribers of its 93.8 million in total outside of the United States. International subscribers represent 47% of total Netflix users. Hulu has tried to expand beyond the United States before, but have hit a plethora of obstacles.
A few years ago, Hulu entered Japan but ended up having to sell the service due to prices being too high and no local content available for the Japanese markets. Hulu has also failed in global expansion due to lack of original content, such as Netflix’s “House of Cards”. But they have learned from their mistakes! Having a “defined original series” is the goal for Hulu before they expand beyond the United States borders again. Popularity of their “defined original series” and local content will allow Hulu to enter the global realm of the streaming market more smoothly as it will be become a more appealing brand.
Many factors play into the success of over-the-top content streaming providers, such as Netflix and Hulu, in it’s ever-changing industry. Some of the factors include the business of binging, advertisements versus no advertisements, the sharing of consumers’ accounts, and their ability to expand in the global market. Unfortunately, the industry also faces many threats, such as the ease of access in the provider’s sites and the increasing amount of shared credentials. By looking at the industry market leader, Netflix, and runner-up, Hulu, it helped us understand the strengths, weaknesses, opportunities and threats for the future of content streaming providers. However, after looking at the statistics and qualities of each over-the-top provider, we strongly recommend subscribing with Netflix. Overall, Netflix has taken over the content streaming industry by storm with the site’s ability to offer content that encourages binge watching, subscriptions with advertisement free viewing, the success of its global expansion and the multiple account option for today’s households.