Can Hulu Compete With Netflix? By the Numbers

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Subscription-based Internet streaming is already revolutionizing the way we consume media, and Netflix Inc. (NASDAQ: NFLX) is the undisputed leader for now. It is not without its competitors though, and as with any nascent industry, we probably have several more years before a firm leader is established.

Netflix has two primary competitors. Hulu is the first, which is a private entity but one that offers investors exposure through its three parent companies: Walt Disney Co. (NYSE: DIS), Twenty-First Century Fox Inc. (NASDAQ: FOXA) and Comcast Corp. (NASDAQ: CMCSA). The second is Amazon.com Inc.’s (NASDAQ: AMZN) Prime. Amazon Prime now has 45 million U.S. subscribers, versus Netflix’s 43 million and Hulu’s 9 million, but the number of Prime subscribers that consume content is unclear. It’s likely that far more individuals consume Netflix-streamed content than Prime since the primary focus for Prime is rooted in retail, not entertainment. The makes Hulu the main competitor, unless Amazon can rebrand itself as an entertainment company, which has yet to happen.

At the start of 2014, Hulu Plus, the company’s subscription service, had around 5 million subscribers. Between then and the last count from September 2015, the user base grew 80% to 9 million. Netflix started 2014 with 48 million subscribers. Across the same period this figure grew 43% to its current 69 million globally. Hulu, then, is growing faster than Netflix, albeit with a fraction of the latter’s total user base.

What about revenues? In 2015, estimates put Hulu’s revenues at around $1.5 billion from both its subscriber and advertising models. Netflix generated $4.8 billion during the first three-quarters of 2015 and looks set to post for the full year in the region of $6.6 billion, conservatively. Hulu’s 2013 revenues came in around $1 billion, meaning across a two-year period its annual revenues have grown by 50%. Netflix posted 2013 revenues of $4.3 billion, meaning across the same two-year period its annual revenues expanded by close to 55%. Netflix wins out marginally on this count.

Of course, it’s not all a numbers game. There are some key differences between Hulu and Netflix that likely will play into who comes out on top going forward. Netflix is investing far more in original content than Hulu, and it has a far bigger catalog of films and TV programming, while Hulu primarily focuses on showing the latest TV shows. Anecdotal evidence suggests consumers are attracted to the box-set model pioneered by Netflix, and this could drive users away from Hulu and toward Netflix this year.

Many networks are now making their programming available on demand through their own platforms for free soon after initial showing. This could also hurt Hulu’s subscription base.

For now, Hulu is competing decently with Netflix, with some potential roadblocks ahead that continue to give the advantage to Netflix. If Hulu pulls away though, the potential for a spin-off into an IPO goes up.