Netflix and Hulu should join forces. I propose a merger, or, more precisely, that Netflix should acquire Hulu. Their more powerful rivals — the nation's cable, satellite, and phone companies, not to mention Amazon, Apple, and soon Google TV — are rushing to provide Internet-enabled on-demand TV and movie services, something the two pioneers have done successfully for a few years now. The combined company could offer an irresistibly cheap alternative that's sure to attract those of us who are sick of forking over a fortune to the cable guy every month. In other words, everyone.
This is the perfect time for HuFlix, before competitors get their act together and before Hulu and Netflix damage each other with the direct collision course they're on. Hulu spent the summer slowly previewing its Plus subscription offering, which, for $9.99 a month, will let people watch full seasons of their favorite shows on the iPad, iPhone, and such devices as Sony and Vizio TVs and Blu-ray players.
Sound familiar? About two-thirds of Netflix's 15 million customers now use the site's instant streaming service to watch movies and TV shows on a wide variety of media players, home theaters, Internet-enabled TVs, and game consoles. During the past few months, Netflix has added thousands of new movies and TV episodes to its catalog of streaming titles; in fact, the company estimates that its mail business will peak in 2013, and soon it will spend more on licensing deals than it does on postage. Within the next few years, if there's no merger, Netflix and Hulu will be virtually indistinguishable competitors.
Hulu, in particular, might not survive a skirmish with the Netflix behemoth. Hulu was built on the promise of instant gratification at no charge, so how many of its 44 million monthly unique users (streaming more than 1 billion videos a month, according to comScore) is it likely to recruit to Hulu Plus? Two percent? That's more than $100 million in annual subscription revenue, but it can't compare with Netflix's $2 billion annual run rate — and it won't satisfy investors if Hulu makes good on its reported IPO plans.
Meanwhile, consider how Hulu could transform your Netflix membership. In addition to the traditional DVD plan, subscribers would get an expanded streaming catalog of current TV shows — something Netflix has been able to do only in limited doses. With NetLu, you'd be able to play the shows on the widest possible array of devices. The new firm could still keep Hulu's free, ad-supported component; it would be a great source of extra revenue for Netflix, and would let the company introduce its brand to new customers. Netflix might even be able to expand the free service with titles from its back catalog, or reduce its subscription prices by placing a few ads to some streaming titles currently under its pay service.
Now let's say Nulu charges $30 a month for the entire package. Would you ditch cable for that? Who wouldn't? (Netflix's 15 million subscribers alone would make the new Nulu a $5.4 billion business.) And without question, it makes more sense than a fight to the death.
The big wrinkle in this plan is Hulu's multipart parentage. NBC Universal, News Corp., and Disney (which bought in in 2009) each have a 27% stake in the firm, and each may have powerful reasons for wanting to keep Hulu away from Netflix. NBC's ownership poses the biggest thorn; that company is currently being swallowed by Comcast, which must see both Netflix and Hulu as a direct threat to its (thus far lurching) efforts at wooing its cable subscribers with on-demand Internet offerings such as Fancast.
Netflix would have to convince the traditional TV powers (especially Comcast) that they'd be better off with the licensing revenue from HuFlix programming rather than running their own services and continuing to fret about whether Hulu's revenue could ever equal broadcast TV's glory days. The looming specter of Amazon and Apple entering the e-video subscription market could also help Netflix make the sale. If Netflix offered a pretty penny and made it seem as if it were doing Comcast, Disney, and News Corp. a favor by battling its tech rivals, it could well make off with Hulu.
The only question, then, would be what to call the new venture. (You've seen our suggestions sprinkled throughout.) Whatever they decide, it will be paradise.
A version of this article appeared in the October 2010 issue of Fast Company magazine.