In brief: Hulu plans to scale down its live TV offering as a means to help reduce costs while also serving content consumers want, instead of bundling as much as possible, at the lowest price possible. The details on this come from a new report out of The Information which attributes comments given by Hulu’s CEO, Randy Freer during an interview.
Freer admits that the option to offer live TV, as it currently is offered, is a difficult task and in no small part due to the licensing fees associated with providing high-profile content. As a means of recourse and to address further losses in the future, Hulu will essentially look to reinvent the bundle by offering consumers smaller bundles that are more customized to individual users. In principle, these smaller bundles will not necessarily be much different to the various add-on services already offered to consumers (Sports or Entertainment, for example), except the idea here is to not necessarily offer these as add-ons to an existing live TV bundle as is typically the case today, but more so as an added bundle to the company’s existing on-demand video service. In terms of implementing these changes, it would seem this is not going to happen anytime soon with the vision explained today more of a long-term approach than an overnight change to Hulu’s operations.
Background: Hulu first launched its live TV solution back in May of last year with the service positioning itself as a $40 per month option that provides access to over 50 channels. What really differs Hulu’s live TV streaming option from the competition is the inclusion of access to the company’s existing on-demand content. Since then, Hulu has managed to maintain the same competitive price point, and this has translated to a decent return in user adoption - at the start of the year Hulu was estimated to have close to half a million subscribers to its ‘Hulu with live TV’ option, and more recently that figure is understood to now be closer to the one million mark.
However, it has become clear pricing at this level is not a massively sustainable model due to the distributors attempting to keep their pricing low enough to remain enticing to new streaming customers, while at the same time battling the media companies who own the rights to the content and who are looking to ensure they receive as much as possible. This approach has meant companies like Hulu find themselves being squeezed at both ends of the spectrum, and in some cases to the point where the live TV service proves to be a loss leader for the business. For example, a recent report suggested one of Hulu’s live TV competitors, YouTube TV was charging customers almost $10 less than it pays out for content - again, all as a means to attract new customers, to a new service, in an industry that’s still in its infancy. This is where the comments made by Freer now come in as it would seem Hulu is making it clear it not only is unable to sustain the current model, but actively has no plans to. Interestingly, while licensing is the biggest financial hurdle for distributors, Freer suggests the change in model will be more financially beneficial to the business through a reduction in the use of technology needed to distribute content, rather than straight reductions in the out-of-pocket fees to media companies.
Impact: The comments made by Freer seemed to suggest this would be in the best interest of consumers although it is clear the biggest benefactor of such a change would be Hulu, who now seems clearly intent on changing the current bundle landscape to ensure it capitalizes on profit margins. In fact, Freer also argues that changes to a model like this will mean Hulu is able to offer more original programming which is another area it needs to excel in if it's to continue to compete with its more natural competitors, including Amazon and to a larger extent, Netflix. Which raises the first and more fundamental issue facing Hulu - the fact that it seems to want to compete with everyone on everything. Not only does Hulu want to offer on-demand video content spearheaded by its own original programming to take on Amazon and Netflix, but it also wants to offer live TV services to take on DIRECTV NOW, Sling TV and YouTube TV, as well as the traditional providers who are also continually looking at how they can streamline their own services via a direct-to-consumer approach which would effectively cut-out companies like Hulu. So while there is a clear issue with sustainability for live TV distributors in general, Hulu is in many ways compounding its own issues by trying to become a catch-all option.
In terms of the impact on subscribers, both new and old, it remains to be seen how likely it will be for Hulu to create the packages that best suits its own needs and therefore it's unlikely there will be any major changes to the service in the very near future. One of the main hurdles Hulu faces in creating bespoke packages is the actual networks and content providers. As these are entities which prefer the bundling of their services together to ensure a healthy bottom line that in turn can support all of their channels. For example, Hulu seems to really want to strip network and content providers down to the channel level so that it can effectively cherry-pick the channels it wants (those that are popular) and not have to pay (or pay less by only making the content from these channels available on an on-demand basis) for those that it doesn't want (less popular). Of course, there is very little benefit in this model to the media companies, as it could result in a situation where if other services who aggregate content follow suit, the media companies would soon find their less-popular channels effectively not gaining enough traction and usage to remain self-sufficient. So it remains in the interest for media companies to continue to sell their collection of channels as one product to services like Hulu.