Some of TV's Greatest Hits Move From Netflix to Hulu

(Bloomberg) -- The auction for reruns of “This is Us” began with the usual suspects. Streaming pioneer Netflix Inc. bid millions to offer NBC’s year-old hit, a multigenerational family drama. So did Amazon.com Inc., the e-commerce giant with growing ambitions in online media.

Yet the domestic streaming rights went to a newer buyer: Hulu, the rival service owned by four big media companies, including two that made and broadcast “This Is Us.” The company and NBC bid about $3.5 million per episode for U.S. rights from 21st Century Fox Inc., which produced the show, people familiar with the matter said. That ranks among the priciest licensing deals ever for Hulu, said the people, who asked not to be identified discussing a private deal.

Backed by Hollywood’s deepest pockets, Hulu has a chance to reshape the burgeoning business of online TV. After years of licensing films and shows to Netflix to replace their own sagging DVD sales, owners Walt Disney Co., Comcast Corp., 21st Century Fox Inc. and Time Warner Inc. are giving Hulu the support it needs to be a vigorous competitor. They also stand to gain more control over their own futures as viewing moves to the internet, where streaming movies and TV shows are projected to generate $46 billion this year globally.

To compete with larger rivals, Santa Monica, California-based Hulu is spending about $2.5 billion on movies and shows in 2017 -- often ones carried by those competing services. This year, the company acquired rights to more than 3,000 episodes of TV, including “NYPD Blue” and “The Bernie Mac Show” from Fox, “Black-ish” and “Fresh Off the Boat” from ABC, and past NBC hits “Will & Grace” and “30 Rock.” Hulu also became the first streaming service to win the Emmy award for best drama, with the dystopian series “The Handmaid’s Tale.”

“It helps,” said Rich Greenfield, an analyst with BTIG Research LLC. It “gives you more to do. There aren’t enough high-profile originals yet on Hulu.”

Some of those shows Hulu acquired, including “Bernie Mac” and “30 Rock,” used to be on Netflix. The Los Gatos, California-based company, originally a DVD-by-mail service, vacuumed up every TV show and movie it could license from large media companies. Netflix spent about $1 billion on streaming in 2012, the year before airing its first original hit series “House of Cards” and “Orange Is the New Black.”

The strategy worked. The Netflix catalog of old TV hits attracted tens of millions of subscribers, many of whom cut back on traditional TV. The company expects to top 108 million customers worldwide when quarterly results are announced on Oct. 16. And the cash media companies got from Netflix made up for declining DVDs and syndication sales.

Yet Netflix’s relationship with media giants has become strained more recently. Disney and Fox blame Netflix for the decline in live-TV viewing, along with the resulting loss of cable-TV subscribers and slack advertising revenue. Disney said in August it will yank its movies off Netflix in 2019 and reserve them for an as-yet unnamed company-owned streaming service.

The auction of “This Is Us” shows how their interests have diverged. The program is carried on NBC, and the network had hoped to offer every episode of the current season on its app and on Hulu while “This Is Us” is on the air. As Fox, the show’s producer, prepared to auction the reruns, NBC urged Hulu to protect those rights.

Hulu has proven more than willing to satisfy its owners. The company, which doesn’t disclose paying subscribers but says it had about 47 million viewers as of May, willingly promotes NBC when “This is Us” airs, and agreed to terms that let the network offer episodes on its own apps. And while Netflix may pay more for a series upfront, Hulu shares revenue it receives from a show’s run on its advertising-supported service.

When an agreement was finally clinched, Hulu had the domestic streaming, NBC was able to stack up episodes on its app and Amazon had gained the international online rights. (Hulu hasn’t operated outside the U.S. since selling its Japanese unit in 2014.)

“The syndication market has been very very robust, domestically and internationally,” said Jeff Hirsch, chief operating officer of the cable network Starz, which licensed the original series “Power” to Hulu. “You have more providers who want content to fill out their offering.”

For its part, Netflix acknowledges the flow of such deals has slowed and says it’s become less interested in acquiring large catalogs of shows and movies as more of its $6 billion budget goes to original productions, which will number 200 this year. The company said last week it’s raising the price of its most popular streaming plan by 10 percent to $11 a month. Hulu’s basic service is $8 a month, and ad-free for $12.

Hulu still has a lot of catching up to do, and that’s a big reason why media giants haven’t stopped licensing to Netflix altogether. Fox sold Netflix the rights to “American Crime Story,” and Comcast licensed the NBC show “The Good Place.’’ CBS Corp., the lone broadcast network owner without a piece of Hulu, licensed Netflix shows on the CW for more than $1 billion and sold the streaming-video giant the international rights to its new “Star Trek” series.

But with a growing budget, a new $40-a-month cable-like TV service, and a lineup that now includes original series such as “The Handmaid’s Tale,” Hulu has a chance to close the gap. On Monday, the company announced an agreement with ESL, the esports company, to carry four series.

“I’m not sure consumers know Hulu has all this deep catalog,” Greenfield said. “It was recent TV. Now live TV and originals. They have never marketed the catalog element aggressively.”

To contact the reporters on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net, Gerry Smith in New York at gsmith233@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum