Hulu shows telcos there is profit in long-term thinking

Hulu has started to post some serious numbers, perhaps showing the telcos not every initiative has to be a silver bullet to reap billions.

The content world is one which promises profits, prominence and relevance, hence why the telcos are so keen to find a seat at what is traditionally quite an exclusive table. The OTTs might have disrupted the status quo with their own content platforms, stealing market share and inspiring a generation of cord cutters, but the telcos are still gazing longingly from the outside.

And the rewards are notable. Hulu now has 17 million total subscribers across its subscription on demand (SVOD) and live TV plans in the US, a 5 million boost (40%) increase from last year, while advertising revenues have now vaulted past $1 billion.

“2017 was a momentous year for Hulu,” said Hulu CEO Randy Freer. “We took several major steps to become a 21st century direct-to-consumer media company, evolving into both an aggressive SVOD business and a formidable new live TV provider.

“The year ahead is going to be even bigger, as the company invests more in content – live, library and original – as well as technology and data to make Hulu the leading pay TV choice for consumers.”

One big question remains; how can the OTTs start from nothing and create immensely successful content businesses, while the telcos are unable to mobilize their millions of customers into any form of successful video venture? We suspect it is down to a lack of patience.

While Hulu has erupted into the mainstream over the last couple of years, it is not the breakthrough business some might assume. It has been around for quite a while. It was initially founded in 2007, and it now owned by The Walt Disney Company, Time Warner, Comcast and 21st Century Fox, who’s share will be transferred to Walt Disney once the acquisition is complete. Outside the US, the business is owned by Nippon in Japan.

For several years, Hulu was nothing more than a speck on the digital landscape, but with long-term thinking, a more genuine approach to platform design and customer experience, as well as efforts to create a long-list of content partners, it has emerged as one of the front-runners trying to capture the hearts and minds of the cord-cutting generation. Hulu viewers have a median age of 31, nearly 25 years younger than the average broadcast TV viewer, and a median annual household income of $92,000. It doesn’t seem to be doing too badly.

Of course there have been rumours of acquisition over the years, but this is an example of not panicking and playing the long-game. It didn’t rush in an purchase expensive rights, it created a platform and then moved forward when it was more of an established brand. The same can be said of Amazon and Netflix. These are another two who made a name in the content platform business, before spending monstrous amounts on big-ticket rights.

Unfortunately for the telcos, there seems to be a silver bullet approach. The fortunes have been seen, and want to be seized immediately. Look at BT with its costly venture into sport. It was seemingly a go-big-or-go-home bet to dominate the content business from day one, which has largely failed. A lack of long-term vision and investment in the right technology to create a platform which offers a cohesive experience to the consumer seems to be to blame here.

Another lesson which can be learned here is original content. Every success story in the content arena focuses on original content, and this is an area the telcos do not seem to want to engage in. TBI Vision’s Editor Jesse Whittock commented on last week’s podcast that this was the point of failure for BT. There was little investment in original content, a segment which is craved by the consumer, and now the telco is suffering the consequences of owning a mediocre content platform, with few USPs.

The original content game is a tricky one to get involved with as it requires creativity and acceptance failure will be a consequence. This approach to risk is something which the telcos are seemingly not willing to live with, but it is turning into the only way success is possible in the internet era.

Not every bet is going to be a winner, but the bold will continue to invest and eventually find a programme which blows the world away. House of Cards has been a glorious success for Netflix, but it doesn’t generally like to about The Get Down (one of the most expensive shows every made) and Sense8. Both were failures, but you have to live on the edge to find success.

One final area which we would like to point out is that of choice. Hulu offers two types of subscriptions; ad-supported and commercial-free current season shows. One you get for free, but have to live with ads, while the other is paid-for but a content gluttony. This is a challenge to the status quo which has also been championed by the other OTTs.

Those are taking the more traditional broadcasting route, BT or Sky for instance, charge the user for a subscription, whilst also serving up ads. Offering the consumer a choice, ads or a subscription charge, does seem to be working for the millennials. And this is not just limited to TV content, Spotify does the same and is immensely popular.

Of course, this might well be down to the way partnerships are negotiated. BT offers customers a box and grants a pathway to the end-user to the channels. The network owners are the ones who make the money off advertising, but BT and Sky do benefit from advertising revenues on their owned channels.

The OTTs have taken a different approach to making money, seemingly not abusing the consumers commercial attractiveness (known as bleeding an asset officially), and it is working. As the new kids start to venture more into movies, original content and sport, the definition of traditional TV will start to become a distant memory. The rules are changing, and the telcos need to adapt fast or let go of the content dream.

Overall, you could question whether the telcos have the ability to understand what long-term ambition is. The pressures on the spreadsheets are gathering momentum, and the need to drive new revenue streams is becoming stronger. The OTTs are showing success in the content world can only come with patience, but can evidence and logic prevail over the pressures on the profit margin?