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Will Disney’s ESPN Be Added to Hulu’s Rumored Online TV Service?

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Hulu expected to launch an online television service

Early this month, the Wall Street Journal reported that Hulu was developing an online TV service. The service is expected to be launched in 1Q17.

The report states that the Walt Disney Company’s (DIS) ABC, ESPN, and Disney Channel and 21st Century Fox’s (FOXA) Fox News, FX, and regional sports networks are also expected to be available on Hulu’s online TV service.

Hulu is jointly owned by Disney, 21st Century Fox, and Comcast’s (CMCSA) NBCUniversal. Disney’s ESPN is a part of skinny bundles such as Dish Network’s (DISH) Sling TV and Sony’s (SNE) PlayStation Vue.

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Disney is pursuing a skinny bundle strategy for ESPN as Millennials move away from pay-TV. Bob Iger, Disney’s CEO, mentioned ESPN’s being included into skinny bundles at a Deutsche Bank (DB) investor conference in March 2016. Iger stated, “It’s also important that ESPN be present in the skinny bundles whether they are 2 million of them, 5 million of them, 10 million of them we don’t know. But ESPN should be part of those.”

As the chart above indicates, the number of subscribers for ESPN fell from around 99 million in 2013 to 92 million in 2015.

However, during Disney’s 1Q16 earnings call, Iger noted that ESPN has started to gain subscribers over the last few months. He credited this rise to the inclusion of ESPN in Dish’s Sling TV OTT (over-the-top) service.

Why is ESPN interested in skinny packages?

One of the reasons consumers are moving away from pay-TV is the cost factor. While a cable connection costs anywhere from $100 to $150 per month, skinny bundles such as Dish’s Sling TV are far cheaper at $20 per month. Companies are also offering skinny bundles due to the rise of pure-play OTT operators such as Netflix (NFLX).

Netflix’s plans average ~$10 per month. Millennials, or those in the 18–34 age group, tend to prefer OTT operators over pay-TV services due to Netflix’s original, ad-free content. Many of these Millennials have either cut the cord on pay-TV or have never subscribed to pay-TV. Pay-TV operators have started to offer skinny bundles of channels to woo Millennials back to pay-TV.

Netflix makes up 0.8% of the PowerShares QQQ Trust, Series 1 ETF (QQQ). QQQ holds 4.3% in the television sector.

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