Hulu's value proposition to cable operators: stemming subscriber losses

BOSTON--Cable operators that integrate Hulu's over-the-top video service into their lineup will get, in return, happier subscribers who are much less likely to churn. At least, that's the value proposition put forth by Hulu's Jim Galley, director of the company's distribution and strategic partnerships, in a panel session at The Independent Show here.

"We (offer) full current seasons as well as past seasons of TV series," Galley said, explaining that Hulu's value proposition is threefold. "So, content is one. … The second is that the interface is very user-friendly. … and third is the revenue (potential)," driving subscribers to either sign up for or stay with a cable operator.

For example, Galley explained, subscribers who have access to Hulu through their set-top box--such as hybrid OTT STBs offered by TiVo to its cable operator partners--"can stay within their environment" when they watch Hulu, rather than having to shift to another device. That, he said, will hopefully drive more subscriptions.

Hulu, like its SVOD counterpart Netflix (NASDAQ: NFLX), has partnered with a number of Tier 2 cable operators such as Atlantic Broadband, Mediacom, WOW, Armstrong and others. Hulu is currently working with TiVo to integrate its OTT stream into the vendor's set-top box, used by those operators.

Galley said Hulu should launch on Atlantic Broadband's advanced STB by the end of the year.

By following Netflix into the hybrid OTT-cable trend, Hulu is targeting a market it sees as ripe for its own subscriber growth. Galley pointed out that four out of five Hulu subscribers also have a pay-TV subscription, "so there is room for growth for us," he said.

Indeed, citing its viewership statistics, Hulu recently proclaimed that "the shift to the living room continues." The company said that between the first quarter of 2014 and the first quarter of 2015, the share of U.S. Hulu viewers on OTT devices that work on TVs rose from 44 percent to 58 percent. At the same time, the company said desktops and laptops saw their share drop from 41 percent to 24 percent, while mobile device viewing held relatively steady.

Hulu teamed with Showtime just as the premium network launched its own standalone service, Showtime Anytime. The move could also have strategic value for cable operators that partner with Hulu. While mainly targeting broadband subscribers who don't take a pay-TV subscription but may want access to Showtime, Hulu's offering could have broader appeal to video subs. "The more products a subscriber opts into, the less likely they are to churn," Galley said, based on studies that show higher-tier customers tend to be more stable pay-TV subs.

Galley hinted that Hulu may bring more premium networks onto its SVOD offering. "A year ago, Showtime wasn't even on our radar … as other premium folks put themselves on the market we'll look at each opportunity individually."

Related articles:
WSJ: Hulu may include ad-free option to SVOD service for $12 or $14 per month
Premium OTT revenues will more than double by 2018, Ooyala-Vindicia report says
Hulu to distribute Showtime's standalone service at 20% discount
New study finds little evidence that Netflix is cannibalizing pay-TV customers

Updated July 23 to clarify Hulu subscription stats.

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