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Why Did Time Warner Invest in Hulu?

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Time Warner’s stake in Hulu

On August 3, 2016, the day Time Warner (TWX) announced its fiscal 2Q16 earnings, it also announced that it has acquired a 10% stake in Hulu for $5.8 billion. The company stated its investment in Hulu “will increase our company’s exposure to the secular growth in over-the-top services, and will give Hulu more resources to offer consumers more shows and more choices, fostering competition and innovation amongst both SVOD services and among MVPD services.”

The company’s Turner business division also entered into an affiliate agreement with Hulu in which Hulu’s soon-to-be-launched online television service will carry all the Turner channels. The online television service is expected to launch in 1Q17.

According to a Wall Street Journal report, The Walt Disney Company’s (DIS) channels 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.

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Time Warner said that its investment in Hulu is consistent with the company’s strategy of distributing content on traditional MVPDs (multichannel video programming distributors) and OTT (over-the-top) platforms. It also said that its 10% investment in Hulu would not mean an active role for the company in the governance of Hulu. Time Warner expects that in the coming year, there will be more virtual MVPDs launched such as Dish Network’s (DISH) Sling TV.

Rising trend of online television services

As indicated by the rising popularity of streaming services such as Netflix (NFLX), viewers are watching more and more content online. According to a Digitalsmiths 4Q15 video trend report and as the above graph shows, Netflix leads the OTT market with 48% share, followed by Amazon (AMZN) at 20%.

Hulu, Time Warner’s HBO NOW, and CBS’s (CBS) All Access are smaller players in this market. However, with Hulu’s proposed online television service, the streaming market could be set for an upheaval.

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