Hulu Needs to Get Bigger, Faster -- As The Future of TV Advertising May Be at Stake

If you've bounced around the NewFronts at all this week, or just read anything in the ad trade press, it’s hard not to come away with three conclusions:

• TV advertising is in trouble, at least long-term
• TV advertisers are dying for someplace else to put their dollars, and don’t know where to go
• Consumers are furiously running away from live commercial television

All of which should position Hulu to be the biggest winner of all. But its role may be bigger than an outlet for TV ad replacement dollars. It may need to save TV advertising.

So it needs to get a lot bigger -- and fast -- or all may be lost. Yes, this is dramatic. But not hyperbolic.

This Ad Age piece by Anthony Crupi is a must-read if you’re still suffering from TV Ad Stockholm Syndrome (“there is still no more powerful medium than linear TV to deliver mass reach”).

The average non-sports show on network TV basically pulls in about a million and a half viewers in the 18 to 49 demographic that brands care about, per Crupi. To put that in plain English, that is not a "broadcast" by any sense of the word. Millennials, Gen X-ers and Z-ers are rejecting the live linear, ad heavy model in droves, and no amount of modest ad clutter reduction is going to reverse that.

If advertising is going to live happily with on-demand streaming, the model, the presentation, the interface, the tech... it all needs a total redo.

That’s what Hulu is. For Hulu’s $5.99 subscription model, the ad-to-content ratio is more than respectful. The company pledged during its NewFront the other day to limit ad breaks to 90 seconds while making sure people don’t get pounded over the head with the same ads again and again (which is far too often the case with ad-supported streaming).

With so many people’s TV consumption shifting to ad-free streaming services, along with all the brand safety and data breach uncertainty among the digital platforms, brands are dying for a place to park their increasingly ineffective TV budgets. Which is perfect for Hulu.

That’s in the short term.

What brands really need is for a platform to make ad-supported television palatable to as many cord-cutter/cord never/Netflix natives as possible. Maybe you believe that the Tubis and Plutos and Xumos of the world are the ones to accomplish that. Maybe you’re into binging old seasons of “Unsolved Mysteries.” Have at it.

But Hulu can train an entire generation that ads are OK. It's vital for brands to have such a vehicle, or -- as many advertisers have started to mention -- advertising budgets may simply start to shrink entirely.

The problem is, Hulu just isn’t big enough. Yet.

Yes, the company said earlier this week that it had reached 28 million subscribers, a jump of 12% this year. But that’s still nowhere near Netflix's user base. More importantly, it’s nowhere near the ubiquity of broadcast or cable TV.

Advertisers need Hulu to get bigger, faster.

How? Hulu has already inked creative deals with the likes of Spotify and Sprint to boost subs. Disney - which is reportedly close to owning 90% of Hulu - has discussed bundling Hulu with Disney+, which on its own will run consumers $6.99 per month.

Here’s a thought - make Hulu free to Disney+ subscribers.

Here’s a crazier thought. Make Hulu free to everybody.

"Mike, Hulu is already losing a ton of money every year. Why would it give up all those folks paying $5.99 per month?"

First of all, I’m not advocating for Hulu to make its fast-growing pay TV service free. Nor would I take away the ad-free $11.99 per month package.
Let’s guess that among the 28 million subscribers Hulu announced that 20 million pay $5.99 per month. That’s roughly $1.5 billion per year in subs fees.

According to Variety,  Hulu reeled in $1.5 million in ad revenue for 2018. By offering content for free (or even 99 cents per month), couldn’t the company double that number to make up for the subs shortfall if it drastically expanded its audience and inventory pool?

TV right now is still hanging onto a $70 billion market in the U.S. If Hulu could get to 50 or even 60 million subscribers, couldn’t it steal 5% of that? ($3.5 billion). Or even 10% over time?

There are probably some deep flaws in my math here. But the larger point is that TV ad budgets will eventually be up for grabs, and could go by the wayside.

Meanwhile, consumer tolerance for advertising is at a crucial juncture. If the industry doesn’t find a way to re-indoctrinate people into accepting the value exchange between brands and viewers, the world of brand advertising could be decimated.

That’s not on Hulu. But Hulu is uniquely positioned to lead - and benefit.

Header photo by Grant on Unsplash