Hulu Falls Deeper Into The Red After Burning Nearly $1 Billion In 2017

More than one million Americans ditched their cable service during the third quarter of 2017, and once complete figures are available from the Q3 earning season, it's a virtual certainty that this trend will continue, as the oligopoly of cable companies - many of which have a virtual monopoly in their regional markets - have largely stuck with expensive packages that leave consumers little opportunity to opt out of programming they don't want.

The deterioration of cable's dominance was underscored a year ago when the number of Netflix subscribers surpassed the number of pay-TV subscribers.


Cable subscriptions have been declining steadily since 2013. But for all this talk of "cord cutting", many investors and consumers perhaps don't realize that streaming services - most notably industry leader Netflix - are cash burning machines. So far, investors have mostly ignored this, prioritizing subscription numbers over all else. Netflix shares soared to all-time highs in January, a repeat of their reaction from the previous quarter, when it announced the addition of 8.4 subs in Q4 - its highest ever quarterly increase. Though, according to its forecasts, it will likely burn between $3 and $4 billion in cash as it commits a record $8 billion to developing new content.

Amazon Prime's streaming service, the second-largest in terms of subscriber count behind Netflix, has only a negligible impact on the company's overall cash burn.

But according to information gleaned from Comcast's latest 10K, Hulu, the No. 3 service, burned through $920 million of the $1 billion its parent companies invested in original content. Comcast alone invested $300 million in Hulu last year and booked a $276 million loss, according to Variety.

Hulu dropped deeper into the red last year as it boosted spending on originals and launched its live TV service — and the losses are expected to mount in 2018, as it continues to invest in content to fuel growth.

In 2017, Hulu lost $920 million, versus a loss of $531 million a year earlier. Its four owners — Comcast, 21st Century Fox, Disney and Time Warner — invested $1 billion in the streamer (versus $733 million in 2016, including $583 million from Time Warner).

The figures are based on Comcast’s 10-K disclosures, which said it invested $300 million in Hulu last year and recorded a $276 million share of losses. Comcast, Fox and Disney owns 30% of Hulu, and Time Warner holds 10%

Most of that burn is - just like Netflix - related to spending on original content. The company expected to spend $2.5 billion on content, far less than its chief rival.


As the streaming losses mount, analysts say investors should demand that its owners should be more transparency about how Hulu's operations. When its losses were relatively small, this wasn't as important. But now, it could begin to have a larger impact on EPS, according to Variety.

According to estimates by BTIG Research analyst Rich Greenfield based on the owners’ financial disclosures, Hulu’s losses will climb 80% in calendar year 2018 to around $1.7 billion and the four parent companies will invest an additional $1.5 billion in the venture.

Investors in Disney and 21st Century Fox should demand more disclosure about Hulu’s financials, Greenfield says. That’s particularly relevant since Disney will acquire 21CF’s 30% stake in Hulu under the mammoth pact the media conglomerates announced late last year.

"When Hulu’s losses and parent-company investment were relatively small, its ability to skew financials at its parent companies was modest," Greenfield wrote in a blog post. But despite the growing losses "we have virtually no disclosure on the positive impact Hulu’s spending is having on its parent companies."

Hulu said at the end of last year that it had more than 17 million subscribers for its on-demand and live TV packages, which are available only in the US.

That's up 40% over the course of a year and a half, though the company didn't disclose how many of those were for its $40-per-month live TV service.

Disney could feel the largest impact since it's preparing to acquire the entertainment assets of 21st Century Fox - which would give the House of Mouse a combined 60% stake in the streaming service.

And while Hulu, Netflix and Amazon continue to duke it out in a battle royal to become the internet's undisputed "king of content", telecom giants that compete with Comcast - which owns both NBCUniversal and a stake in Hulu - could try to kneecap their rival by using the freedom granted through the FCC's decision to abolish net neutrality to shake Hulu, Netflix and Amazon down for additional carrier fees - though there's no indication that this will happen...yet.

Instead of fixating on the cash burn, Hulu has spent its time touting its first big streaming success, "The Handmaiden's Tale", which won an Emmy for drama.

The Handmaiden's Tale was good - don't get us wrong - but it wasn't $1 billion in the red good.