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Hulu Drops Free Streaming Service as OTT Viewership Grows

Spending on streaming services is going up

August 9, 2016

Hulu is eliminating its free ad-supported service, citing that it has become very limited—and is no longer aligned with the company’s content strategy. However, users will still be able to watch some free ad-supported episodes of shows through a distribution deal Hulu signed with Yahoo.

US Over-the-Top (OTT) Video Service Users, 2014-2019 (millions and % change)

It comes as no surprise that Hulu is focusing fully on a subscription service. In fact, streaming video spending is expected to rise by double digits this year. Research and consulting firm Strategy Analytics projects consumer spending on streaming services will surpass spending on DVD purchases this year. Spending on streaming services will go up by 22% this year compared to 2015, and consumers will spend $6.62 billion on services like Hulu, Netflix and Amazon Prime.

Hulu first launched its free ad-supported service in 2007, and in 2010 the company introduced its subscription service. This week, Ben Smith, Hulu’s senior vice president and head of experience announced that the company will be shifting its focus to an all-subscription model. According to reports, current subscribers won’t be affected and prices will not be changing.

Through Hulu’s free offering, which is being phased out in the coming weeks, users are able to watch the five most recent episodes of shows from networks such as NBC, ABC and Fox. The company partnered with Yahoo to bring much of this free content, as well as other network shows and clips, to a new platform, Yahoo View.

US Consumer Spending on Video, by Format, 2016 (billions and % change)

According to eMarketer’s first-ever forecast of over-the-top (OTT) video viewership, OTT video services are nearing saturation. This year, 186.9 million people in the US will watch video via an app or website that provides streaming content over the internet and bypasses traditional distribution. The forecast includes viewers of services like Hulu, Netflix and YouTube, and estimates that at this point, the population is already growing slowly. Indeed, nearly nine in 10 digital view viewers in the US already watch video content this way.

Overall, more US TV viewers are watching television shows and movies via subscription-based streaming services. A survey from Hub Research found that the respondents who chose streaming services were nearly double those who picked TV network sites or apps, and they were more than double those who picked free aggregators, such as Crackle or free content from Hulu.

Digital Channels Used by US TV Viewers to Watch TV Shows/Movies, March 2016 (% of respondents)

Hulu clearly sees the opportunity in reaching users who are turning to online streaming services to catch up on their favorite shows. Certainly, the company has been ramping up its subscription businesses for some time now by offering original show content, like “The Path” and “The Mindy Project,” which Hulu picked up after Fox cancelled the show.

However, the online-streaming service space is competitive. Other services, including Netflix and Amazon Prime, also offer exclusive content in hopes of driving new subscriptions. Even networks like HBO, Showtime and Starz, which were once only accessible through cable subscriptions, have come out with their own OTT subscription services.

Perhaps an OTT live TV service, which Hulu plans to launch next year, will help the company stay ahead of its competitors. Although Hulu hasn’t released any details of pricing or content availability on the service, it is expected to launch in 2017. Interestingly, Time Warner recently bought a 10% stake in Hulu, and its channels will be part of Hulu’s upcoming live TV service.

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