Hulu, LLC was formed as a joint venture in March 2007. Hulu does not readily give out revenue information. However, as of May 2016, it had a subscriber base of 12 million people. If each of those members subscribed at the lower-tier ($7.99/month at the time of this writing), that would be approximately $107.88 Million per month in revenues generated.
The company derived its name from a Chinese proverb that has a dual meaning. The first meaning is a holder of precious things. The secondary meaning is interactive recording.
How the Company Started
The company started as a joint venture with ABC Television Group (Disney), Fox Entertainment Group, NBC Universal, and Turner Broadcasting System (Time Warner). The company is a pioneer in the subscription internet video streaming market.
The company received a private equity round of funding at the start in 2007 of $100 Million. They received two more rounds of funding. The total amount of disclosed funding is close to $700 Million.
Deals with broadcasters don’t last forever. These companies try to hold viewers hostage by pulling out of deals during times of crucial programming.
It often happens right before a major event like the Super Bowl, etc. Although Hulu has a huge advantage due to its joint venture business structure, they cannot control every subsidiary it makes deals with.
CBS has finally loosened its restrictions on partnering for content on Hulu. This just goes to show that deal making in this industry can be a challenge. It took a long time for this deal with CBS to happen.
The company had some growing pains with its technology early on. This is to be expected with any service of this type. The internet changes quickly as does the content delivery equipment needed to deliver the programming.
Why it Works
Television programming has been traditionally provided at the mercy of broadcasters. Viewers had to rely on schedules that were pre-set. If they missed a show, they had to either wait for re-runs or they were out of luck.
VHS helped in recording shows but were still at the mercy of broadcasters’ schedules. TIVO helped but also ran into trouble during power outages or when programs were pre-empted by politicians or sports overtime, etc.
Hulu gave people the ability to view what they want when they want it. The company started out as a freemium model and displayed advertising to free users. It has evolved into a two-tier model. The lower-tier still advertises but not as heavily as the previous free subscription. The higher-tier offers commercial-free programming.
The company took the market by storm and many analysts did not believe in the efficacy of the service. They proved these analysts wrong and had strong support for their business model.
The company puts pressure on cable companies as it is much cheaper to view desired shows using the Hulu service. Further, subscribers get to choose what they wish to view, unlike the limited choices available through a cable subscription.
Although Netflix may be seen as a competitor to Hulu, there are significant differences in the offerings of both. Netflix caters to movies and older shows, whereas Hulu focuses on TV-based programming. This could open the door for a joint venture in the future. Amazon would be a competitor that could offer some resistance to both services.
The company runs various promotions. One steady promotional method is offering one week for free for users to evaluate the service. Sometimes, the company has specials offering longer free-trial periods.
In all cases, they require signing up for a subscription plan, knowing full well there will be plenty of people who will forget to cancel before the trial period ends. They also know that many people who get charged while failing to cancel will likely continue for several months, due to the low cost of the service.
In the lower-tier of Hulu’s service, they publish limited advertising. What makes this different from traditional broadcasting is that the advertising cannot be skipped over. Therefore, the advertising will be more effective, all things being equal.
The service is extremely low cost, especially when compared to comparable cable prices. The service does require an internet connection. For some, there is no choice but to use the cable company for that part of the equation.
The company has also hooked up with web content providers such as Microsoft (via Bing) and offers gift cards for free Hulu service as part of the Bing.com reward program. Bing users receive points for using the search engine which can go towards free months of Hulu service. Other point-based services are likely to follow suit if they haven’t already.
More bundling deals are likely to occur in the future. For instance, Roku may offer its device for a discount if you sign up to Hulu for one year, etc. As the industry matures, the players will reach out to each other to find the best ways to optimize each of the services they deliver respectively.
Hulu has a solid subscriber base that is growing. A report in PC-Mag shows the ratings are high for the service and carries a rating of Excellent by the editors of the magazine.
There is a social component to Hulu as well. People have the ability to comment on Facebook about the shows they watch or even about how they enjoy Hulu as a service, etc.
Lessons Learned By The Business
- The company’s employees love working for the company. They admit there have been some growing pains in the beginning but overall, they enjoyed the direction the company takes and the path it is on. Mike Hopkins, the company’s CEO, gets high ratings, according to Glassdoor.com. The company obviously believes in nurturing its employees.
- The company took on Mike Hopkins due to his extensive deal-making abilities as an affiliate manager for Fox. He is a wickedly sharp negotiator and makes him perfect for this type of business.
- The company is aggressive in its negotiations. This is how deals get done in the business. It’s the only thing people understand.
- Creating programming that people want is a major goal of the company. When Fox decided to drop The Mindy Project, Hulu picked it up. This was a wise move as fans of the show became subscribers just to continue watching.
- Networks aren’t the only part of the business. Content delivery companies also need to be on board to create a smooth service for the consumer. This means working with providers such as Roku, Amazon, etc. Working with Amazon has its own set of challenges since it is a competitor.
- The company believes in doing one thing well, instead of trying to be all things to all people. This is why it concentrates on television programming and will continue to do so for as long as it can stay profitable.
How Other Businesses Can Learn From This
Be persistent, especially in a particularly fickle industry such as broadcasting. Deal making is the name of the game for this industry so become better at making deals. There are no other means to run a business such as Hulu without being able to be a good deal maker.