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Hulu is developing a cable-like package of channels

May 2, 2016

Hulu is preparing a cable-like digital service that would stream feeds of broadcast and cable TV channels, a move that highlights how major media companies are grappling with the so-called cord-cutters who are ditching high-cost subscriptions.

The Santa Monica streaming service, which has long been a source to catch episodes of broadcast television shows the day after they’ve aired, is planning to create a more full-bodied online rival to pay-TV providers that would stream entire broadcast and cable channels to consumers for a monthly fee, said a person familiar with the matter who was unauthorized to discuss the talks.

Hulu, a joint venture of major TV network owners 21st Century Fox, Walt Disney Co. and Comcast‘s NBCUniversal, is the latest media company to get into the “skinny bundle” business, which refers to the idea of creating slimmer TV packages with fewer channels that are cheaper than standard cable or satellite services.

Hulu is in active negotiations with Disney, Fox and NBCUniversal for access to their broadcast and cable networks, which include ESPN, Disney Channel, Fox News, FX and others. The proposed new service is significant because it means those powerful media companies don’t want to get left behind as consumers shed or pare cable packages that can include hundreds of channels they never watch.

“All the big network-owning companies realize that it’s impossible in an over-the-top world to stop the eventual creation of smaller, more flexible consumer video offerings,” said Todd Juenger, an analyst with Bernstein. “They all want to proactively be a part of these offerings.”

The move gives Hulu, which boasts nearly 10 million subscribers, another leg up in courting cost-conscious consumers and others who live in the 10 million homes in the U.S. without a pay-TV subscription. Twenty-four percent of Americans do not subscribe to a cable or satellite TV service in their homes, according to a December survey from the Pew Research Center — 15% have canceled their cable or satellite subscription and 9% have never had a cable or satellite subscription.

A Hulu spokesperson declined to comment. But the news comes just days before Hulu is set to appear before advertisers in New York on Wednesday, where the venture could be officially announced.

The unnamed service would let customers watch live streams of participating channels, and would also include a DVR-like functionality to let users watch shows on their own time.

Hulu has been making aggressive efforts to distinguish itself in the increasingly competitive digital TV market, particularly against streaming rivals Netflix and Amazon. Hulu has pumped hundreds of millions of dollars into buying or making original shows and landing high-powered licensing pacts with TV studios, including its deal to acquire streaming rights to the entire “Seinfeld” library.

“We believe the important takeaway is that this is
a way for programmers to take more control of their destiny in a fragmented pay TV ecosystem with heightened risk of ‘skinny’ bundle inclusion/exclusion,” wrote Steven Cahall, an analyst with RBC Capital Markets, in a research note Monday.

Hulu is planning to introduce the new service early next year for about $40 a month. Hulu currently has two options for its subscription service: an ad-supported version that costs $7.99 a month and an ad-free version, which it introduced last fall, that costs $11.99 a month.

Finalizing licensing deals has proved problematic for those looking to enter the space. Apple was said to be announcing a similar service for its Apple TV set-top box last year, but efforts to license programming at rates that would not negatively affect the retail price of the technology have stalled its efforts.

Other media companies, including HBO and CBS Corp., also have launched digital services targeting cord-cutters.

Even so, TV networks must tread carefully so they do not jeopardize their relationships with pay-TV operators that provide a lucrative source of revenue via carriage fees. That’s especially true for NBCUniversal parent Comcast, which owns both a leading cable service and a broadcast network. A spokesperson for NBCUniversal declined to comment.

Hulu’s new service would be similar to the slimmed-down packages of broadcast and cable TV networks offered over the Internet by Dish Network’s SlingTV, available for $20 a month, and Sony Corp.’s PlayStation Vue, which starts at about $40 a month. Hulu, however, would benefit from greater name recognition.

Analyst Juenger pointed out that although Hulu’s offering would give TV companies the chance to capitalize on the push toward more tailored bundles, it’s too soon to tell how considerable the disruption will be and whether it will yield significant cost reductions for consumers.

“What’s really hard to do is to get a skinny bundle that has a low-enough price to be interesting to consumers and has enough networks — it’s a hard needle to thread,” Juenger said. “We don’t even know what networks are involved yet.”

Hulu’s initiative could prompt the networks left out of the new offering to band together to create their own lower-cost challenger.

“I think whatever companies or networks are left out of this Hulu service must be expected to get together and be part of some over-the-top service of their own.”

News of the service was first reported by the Wall Street Journal.

yvonne.villarreal@latimes.com

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