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How Hulu will ride the 10M sub growth wave

Hulu

Hulu has seen spectacular growth over the last year as it reached 20 million subscribers. The company’s CEO expects 30 million soon. Here’s how he has changed the company to ride the next growth wave.

 

Randy Freer Hulu

Randy Freer, Hulu

Speaking with Variety’s Todd Spangler in Cannes, Randy Freer, CEO of Hulu, talked about his company’s major reorganization. Along with the changing faces in upper management, the structure of the company has changed. Mr. Freer says it has reorganized into four divisions: Technology and Products, Subscriber Journey, Content, and Ad Revenue. Here are the priorities he his placing on each division.

Technology and products

Bringing technology and products together in one organization makes much sense for Hulu. The company, like Netflix, owns much of the technology required to run its business. Making sure that technology is perfectly positioned to support product initiatives is essential. To ensure technology and products are in lock-step, Hulu hired TiVo veteran Dan Phillips to run the group.

Mr. Freer articulated two key initiatives Mr. Phillips will spearhead. The first is handling the next growth spurt. Hulu has 20 million subscribers and is expecting that to grow to 30 million quickly. Supporting 10 million new customers, particularly those joining the company’s vMVPD service Hulu Live, will be a major challenge.

The second big challenge is managing data. The company is receiving a truly astonishing amount of user data every day. Tim Connolly, Hulu’s former head of Business Development, said Hulu received four petabytes of usage data every day, and that was when Hulu only had 9 million subscribers. Dealing with all the data is essential to Hulu’s success, according to Mr. Freer:

“In this day and age, you have to be great at data. How you collect it, how you store it, how you protect it, and how you leverage it.”

Subscriber Journey

According to Mr. Freer, one of the key ways Hulu uses the data is to create a great customer experience:

“We try to use it <data> to make sure the customer experience is as positive as it can be.”

The Hulu experience is an area the company seems to be doing a good job in, particularly among its customers that do not also have a traditional pay TV subscription. According to new data from comScore, half of cordless consumers use Hulu, more than Netflix, Amazon Prime Video, or YouTube. As well, the cordless Hulu users watch 23% more streamed video on their connected televisions than Netflix cordless customers.

Content

Mr. Freer says Hulu thinks of its content in three major pools: linear TV channels, licensed on-demand titles, and Hulu Originals. In the short-term, he doesn’t see the balance shifting much between how Hulu allocates resources to each.

In the case of Hulu originals, he expects the company to make 20 to 25 shows next year, far less than Netflix will likely make. One of those shows will be Handmaid’s Tale season three. He also said a new show called Castle Rock, from J.J. Abrams and Stephen King, would premiere July 25th.

Hulu is continuing to expand the on-demand library. This week it announced an agreement with Viacom for several hundred TV episodes and movies. Some of the content will be exclusive to Hulu. For example, MTV’s Daria and Comedy Central’s Nathan for You will only be available on Hulu.

Ad revenue

The data is also a critical component in helping Hulu balance ad revenue generation against maintaining a great experience. Mr. Freer says:

“We use it <data> to create value in the advertising model so we can provide less advertising, make it as valuable as possible, and make the customer experience as valuable as possible as well.”

The data allows Hulu to make all the advertising it delivers targetable and addressable. Better targeting increases the value of the ad slots to advertisers, meaning they will pay more for them. Hulu can generate the same amount of revenue from fewer ads, keeping the ad load lower than traditional television. Lower and more relevant ad loads, in turn, make the experience more valuable to viewers.

Again, the approach seems to be working. More than 60% of Hulu subscribers continue to watch with ads, even though they can pay $4-per-month more to watch without them. As well, the comScore data suggests the ads are no deterrent to people watching for extended periods on Hulu.

Why it matters

Hulu expects the strong growth in customers it has experienced in the last year to continue.

The company has reorganized around four key areas to cope with the expected growth.

Those areas are technology and products, subscriber journey, content, and ad revenue.

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