Spotify Hulu Bundle Vs. Netflix

In today's world, with competition being at an all-time high, marketing strategies are crucial for businesses in the industry. We live in a consumer-driven world where the drive for success, competitive advantage, and powerful relationships are the utter lifeline for companies. An important question that arises when analyzing companies' marketing strategies and reliance on strong relationships is how can newer or small companies rise to the level of the industry titans?

Typically, the predictable response would be to do as stated before and have the companies build stronger relationships; however, it is not always effective and efficient, thus, companies must find other strategies to achieve greater success and the number one spot in certain industries.

To achieve this, some companies have started to think outside of the box. These companies essentially need to formulate a strategy that will lead them to surpass their competitors, while adding a unique touch to their objective.

Additionally, in experiencing the business world on a consumer level we can identify its struggles, needs, and why companies work to eliminate or overpower another. The focus of this paper is to take a deeper look into the strategy that current music and media (movie) subscription services are using. This industry is continuing to expand and is especially popular among millennials, which make up 72% of Spotify users (Somespotify).

If we take a look at Spotify and its new partnership with Hulu, we get to take a closer look on how relations amongst companies cannot just greatly affect them, but also other competitors, specifically Netflix, and their growing future. Hulu is a movie, television, and video streaming site. It was jointly created in 2006 with main credits going to Jason Kilar (Hulu SuccessStory, 2012).

The mission of Hulu is clearly defined on their website as "We aspire to be a must-have entertainment & technology brand that is celebrated for continuing to redefine TV ("What Defines Hulu", 2018)." Here, Hulu specifically says why they exist and what they are trying to accomplish. They want to have a streaming site that is desired by people because of the way that they reinvented watching television.

The company is mainly owned by three different larger company's Disney, Fox, and Comcast. Since Disney bought Twentieth Century Fox, they now own the majority of the company. Comcast owns 30 percent of the company is still owned by NBC, and Time Warner owns a 10 percent of the company (Lee, 2017). The company's financial statements are much more straightforward than the transition of ownership the company has. All money is reported in U.S. dollars. The annual reports of 2017 have the company's revenue at $55,137,000 (Hulu, 2017).

The net income of the years was $9,366,000 and the total assets were 95,789 (Hulu, 2017). In 2016 the revenues were $55,632,000 and the net income was $8,852,000 (Hulu, 2017). The total assets in 2016 were 92,037 (Hulu, 2017). In 2015 the revenue was $52,465,000 and the net income to $8,852,000 (Hulu, 2017). The total assets of that year came out to be 88,122 (Hulu, 2015). In 2014 the company's revenue was $48,813,000 and the net income was $8,004,000 (Hulu, 2017). Its total assists amounted to 84,141 in that year (Hulu, 2015).

In 2013 to company's revenue was $45,041,000 and the net income was $6,636,000 (Hulu, 2017). The total assets were 81,241 (Hulu, 2013). Hulu has a rather good return on its assets or ROA for the past 5 years. To calculate the return on assets, divide the net income by the total assets of that year and multiply it by 100 to get the percent. So in 2017, the ROA was 9.8% which was a slight decrease from the year before, in 2016 which was 10.6% ROA.

In 2015 the ROA increased to 10% from the year before in 2014 which was 9.5% ROA. In 2013 the ROA was 8.1%, which shows a significant improvement between 2013 and 2014. As seen in the financial statements from Hulu in the past 5 years it has done quite well, except for some recent loss in 2017. However, even though Hulu is very successful, it is not the lead in the industry. The title belongs to the juggernaut Netflix, which is Hulu's leading competitor. Hulu, however, hopes to gain some ground against Netflix with their new deal with Spotify.

Today we know Netflix as the biggest streaming service out there, but it wasn't always like that. The truth is Netflix worked very hard to get where they are today and has seen considerable improvements over the years. On August 29th, 1997 Netflix was founded by Marc Randolph and Reed Hastings. Hastings today is the CEO and owns the majority of the shares. Hastings originally was the founder of Pure Software but sold it for 700 million dollars to Rationale Software in 1997. After that, he joined forces with Marc Randolph to form Netflix which originally offered online movie rentals.

Originally the company only had thirty employees in 1998, but with the introduction of the low price monthly subscription in the year 1999, the company started to gain popularity fast. "NFLX" went public in February 2002 and tallied over six hundred thousand subscriptions. The number steadily rose yearly and in 2005 tallied over 4.2 million subscriptions. Although Randolph left the company to pursue other ideas, Hastings continued to innovate and change the industry. He took a guess that the future of the industry would go in the direction of on-demand video streaming, instead of rentals, and obviously was very correct.

Today Netflix has over 137 million streaming subscribers. While their numbers changed, the companies' long-run goals sure haven't. It is no surprise that they are top dogs in the market today. Netflix's mission statement clearly states that, "Our core strategy is to grow our streaming subscription business domestically and globally.

We are continuously improving the customer experience, with a focus on expanding our streaming content, enhancing our user interface and extending our streaming service to even more Internet-connected devices, while staying within the parameters of our consolidated net income and operating segment contribution profit targets." (10-K Item 1). Netflix has also made its nine essential core values public which are judgment, productivity, creativity, intelligence, honesty, communication, selflessness, reliability, and passion.

This is why many customers feel at ease with Netflix. Netflix is a model of how to market correctly. For these reasons exactly, they've made the most profit and easily out-performed competitors. Over the past four years, the company's' net income has been considerably healthy. In 2014 their net income was $266.8 million, 2015 it was $122.64 million, 2016 it was $186.68 million, and in 2017 it was $558.93 million. Netflix blames the dip from 2014 to 2015 on the "involuntary churn" to move toward the new chip-based credit and debit cards because these new chips made it difficult for members to renew their subscriptions.

But, their revenue has been consistently rising since 2014. In 2014 their revenue was $5.505 billion, in 2015 it was $6.780 billion, 2016 was $8.831 billion, and finally, in 2017, it reached $11.693 billion. Their stock prices also face the same trend. In 2014 the average stock price was $57.49, in 2015 it was $91.89, in 2016 it was $102.03, and in 2017 the average was $165.37. This trend has continued into 2018.

The year high stock price in 2018 reached a staggering $418.97! Obviously, Netflix is an extremely popular and successful company, but the question to be asked is how will it combat Hulu and Spotify's recent partnership. Well, let's delve into Spotify a little more to find out how. Spotify was developed in 2006 by Daniel Ek and Martin Lorentzon both were former entrepreneurs of Stardoll and TradeDoubler.

In the early works of Spotify, it started as a small start-up company in Stockholm, Sweden. The name of the company was initially misheard from a name shouted by Lorentzon. As of today, Spotify says it has a value of more than 23 billion dollars or 16.7 billion euros. Spotify is for the average person to listen and browse music of their choice. The company has 159 million active users in 61 different countries, which is also holding over 35 million songs (BBC 2018).

While Spotify has many customers, there is still competition in the market with other music applications including Apple music, Pandora, and SoundCloud. It is prominent that Spotify is doing well because of their net worth which its worth tops $2 billion after NYSE debut. Spotify gets its revenue from its subscribers that pay each month to listen to their music and advertisements. The return on assets for Spotify is a little below average considering how big of a company it is. As of September 2018, the return on assets is 4.59% (GuruFocus 2018).

The financial statements are in both U.S dollars and in Euros because it is a primarily Swedish company. In the financial statement set forth by Spotify on their website, the currency is in Euros. In a full year, the revenue on average is 1,063 million in Euros. In 2017, the revenue of Spotify was 2.9 million euros with a return on assets of -33.84. These numbers are astounding considering that Spotify does well within all the music competition(Spotify Technology S.A.2017). "Spotify expects revenue to grow 20 percent to 30 percent this year as currency swings slow the pace from 2017 (CNBC 2018)."

In 2015, the revenue of Spotify was 2.8 billion dollars which was up 80% since 2014 and they experienced a -21.88 return on assets. In 2014 revenue was 1.21 billion dollars, but there hasn't been a return on investment found (McIntyre 2015). The yearly stock of Spotify is impossible to find because they did not go public on the stock market until April 3rd of 2018. Their stock first opened up at 149 U.S dollars. As of now, the stock has fallen to 129 U.S dollars(Market Watch 2018).

In September of 2017, Spotify technology and the parent companies of Hulu joined forces to offer a student only bundle for $4.99 a month so that subscribers could experience both the music and video streaming services of these two companies, but when the popularity of this bundle took off the two companies decided to offer the deal to everyone for $12.99. This deal shaves approximately $5 a month off of the total if one were to purchase Spotify Premium and Hulu separately. According to Bloomberg.com, Spotify is trying to reach 200 million users by the end of the year and this Spotify+Hulu deal was designed to help boost the number of people attracted to both of their services.

In the past, Spotify, trying to compete with other entertainment services, began to introduce their own video streaming service but according to a blog from TechCrunch, the content that Spotify was putting out was "boring" and ultimately flopped (Perez). The joint venture between Spotify and Hulu is helping to expand Spotify into the video streaming market and help raise revenue.

At the moment there are many competitors trying to catch up to the success of Spotify and Hulu, some of the biggest include Netflix (137 million subscribers), Amazon Music and Prime Video (90 million subscribers), and Apple Music (36 million subscribers). The success of Spotify and Hulu can be credited to many different things. For example, a great marketing tactic that Spotify employs is the offering of a free version with slightly limited access, this gives users the chance to experience the service, and in turn, pay the subscription fee to unlock the full service.

Both Spotify and Hulu have very aggressive advertising campaigns with Spotify having commercials throughout the advertisements in their free version, as well as a number of television ads. Hulu has had a number of tv commercials starting with a huge Super Bowl ad in 2009 starring Alec Baldwin and has since had numerous commercials with high-level celebrities including a plug in this year's Emmy awards. When first announced, Hulu and Spotify's joint venture was expected to have many positive effects for the two companies and their consumers. The positive effects for the consumers are already in full swing. They now have access to the "world's best music, TV, and movie content in the simplest possible way" (Perez, 2017).

However, for the companies, neither will be making much of a profit off the new joint offering for a while, since its intended effects are long-term. At this point in the venture, it doesn't seem that either company will be making any money yet, since "their new bundle price is the same as Spotify's prior student pricing, Apple Music, and Amazon's unlimited music service" (Perez, 2017).

However, the companies confidently look at the future. According to TechCrunch, "it seems that the bundle is a way to eventually funnel higher-paying users into their services, after the students exit college" (Perez, 2017). There are a few main reasons that Netflix will not be affected by Hulu and Spotify's partnership. Firstly, Netflix offers ad and commercial-free streaming, while you have to pay extra for that luxury on Hulu.

As a society, viewers are impatient and want things quick and easily accessible. They don't enjoy waiting for ads to finish before they can resume their show or movie, so most would purchase Netflix just for that reason alone. "This partnership will help both platforms (Spotify and Hulu) grow their audiences, but it doesn't mean that it has to come at the expense of the service that's spending more on content than all of its closest rivals combined" (Munarriz, 2018).

Hulu and Spotify's highly compelling offer and content strategy of partnering isn't the first when it comes to companies introducing carrier/content combos. These strategies have formed over the past couple of years between companies like AT&T, which has DirecTV and HBO. Verizon has the NFL, and Sprint is pushing Tidal (Jay Z's newly adopted music app) while many other various collaborations between companies are arising (Welch, 2017).

These trends of carrier combos are only becoming more and more common yet attractive to the media world in where they can produce many features which benefit the companies significantly. Additionally, by offering subscribers better deals, this will noticeably benefit both Spotify and Hulu by the influx of new subscribers who previously weren't able to afford their services separately (Perez,2017).

As of July 2017, Spotify was in the lead of 60 million paid subscribers while its closest competitor Apple Music had 27 million subscribers as of June 2017. Now with Hulu and Spotify partnering up and introducing access to video, this new feature will most likely only drive Spotify's subscribers up, giving them a safeguard against their number one competitor, Apple Music (Tran,2017). A survey consisting of 30 people was performed to get a better understanding of consumers' thoughts and feelings in regards to music and movie streaming world.

The survey has respondents from five states, and across four different age ranges. The majority of respondents were between 18 and 35 years of age, accounting for 20 responses, and matching the primary target audience of streaming services such as Spotify. The survey consisted of 30 questions including questions about consumers' preferences in general, more individualized questions based on a subscription that they have (either Spotify, Netflix, or Hulu), and followed by demographics questions.

It was found that of our respondents who had a music subscription, the most important factor when purchasing a subscription service was the cost, while the least important was a tie between design and being paired with other services. In regards to a media (movie/tv-show) streaming service, the most and least important factors were content and being paired with other services, respectively. We also found that of those who subscribe to Spotify, the average level of satisfaction, on a scale of 1-7 (1 being the lowest, 7 being the highest), was 5.6 and the most common answer was 6.

Likewise, the average level of satisfaction of those subscribing to Netflix was a 5.8, with the most common answer being 5. Hulu had the lowest average level of satisfaction with a 4.9, however, the most common answer was 5. Of the 28 respondents who subscribe to a music service approximately 54% said that they subscribed to or most often used Spotify, while approximately 36% used Apple Music. Of the 24 people with a media (movie) subscription, a whopping 92% use Netflix primarily (22 people) while just 2 people (8%) preferred to use Hulu.

When asked if they were aware of the Spotify/Hulu bundle that was being offered, half of the respondents said that they were aware, and when asked if they would purchase the Spotify/Hulu bundle, 40% said yes, with another 20% saying that they would consider it. Of the remaining 40% of respondents, 17% said that they already subscribe to the bundle. The competitive nature of the video streaming market gives way to companies experimenting with new ways to grow the company. The Hulu Spotify agreement does just this. Both companies have strong financials to back a long-term deal like this.

Even though it does not currently affect competitors as planned, it gives a promising look in the future for both Spotify and Hulu. As our survey suggested, about 64% of respondents said that they were likely or very likely to purchase a product or service when it is offered in a bundle, and about 40% said that they would purchase the Spotify/Hulu bundle if they weren't already subscribed to other services. This demonstrates promising data for Spotify and Hulu if they can continue to expand their services and promote their services together. Although no significant changes have been realized yet, a close eye should be kept on companies, such as Netflix, Apple Music, and Amazon Prime Video/Music, to see how they are affected and how they fight back.

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