Hulu Plus, the subscription service of US online video player Hulu, has surpassed 4m paying subscribers. In addition, for the first time in the Hulu's history it streamed over a billion videos in the quarter.
The company also revealed that it expects mobile viewing to account for approximately 15 per cent of Hulu's total video consumption in 2013-14, compared to mobile viewing being non-existent in 2011. The company also released data on length of users' visits to the site, with the average clocking in at 45 minutes per session.
In related news, Netflix saw an additional 3.0m paid streaming subscribers added in the first quarter 2013. The company's Domestic streaming product saw 2.4m more members in Q1 2013 and ended the period with 27.9m paying members. The category also saw a slight improvement in margin, which rose to 20.6 per cent, up 6.3 percentage points over the last four quarters. Globally the company now has 34.2m paying streaming subscribers and delivered over four billion hours of films and TV shows in the quarter.
Both subscription services have seen impressive growth during the last year. Hulu has increased its subscriber base from 2.0m in Q1 2012 and 3.0m in Q4 2012 at an impressive year-on-year growth of 103 per cent. Netflix has, in the same time period, experienced an annual growth of 26.8 per cent, from a paid subscriber base of 22.0m in the first quarter 2012.
Hulu and Netflix have driven the market for standalone OTT subscription services in the US, with growth accelerating in Q1 2013 (in which 3.4m net subscribers were added). To place this growth in context, IHS forecasts that by year end 2014 the combined number of paying Hulu Plus and Netflix streaming subscribers (41m) will exceed that of HBO plus Cinemax (40m).
The comparison with leading premium channels is the most appropriate comparison for Hulu and Netflix, rather than measuring them against the US Pay TV operators. The two OTT companies, as well as Amazon, are now acting as premium channels in investing in original content, either through self-produced works or first-run exclusive series. However, it is important to note that to-date, the original content on Netflix has contributed to only a small per cent of the total viewing and total catalogue size, and has had a limited effect on subscriber growth and profitability.
Despite the well publicised investment in exclusive or new content - Netflix's House of Cards and Arrested Development; Hulu's - Battleground and Mother Up!, the share of each company's content budget for original content remains low. However, as the demand side of the market for content is becoming more aggressive in terms of competition, self-produced content is becoming comparatively more cost-effective. Netflix already faces comparatively low margins on its domestic streaming business, which looks poor when compared to its physical business or rivals such as HBO/Cinemax. Despite a 6.6 percentage point increase over the last four quarters in Netflix's streaming margins, reaching 20.6 per cent, streaming margins are still less than half that of its DVD business (46.6 per cent in the latest quarterly results) and those of HBO/Cinemax for 2013 (43 per cent, by IHS estimations). The move towards more self-production will help maintain the improvements in OTT video players' margins; however the transition process will be a long one. IHS certainly does not expect that either Netflix or Hulu will have originally-produced content as a major share of their catalogues in the medium term - third-party content acquisitions are still key to both businesses.