Hulu’s Connolly: High customer acquisition costs ‘nuke’ traditional pay TV operators in carriage talks 

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Hulu's "A Handmaid's Tale" secured the first best series Emmy ever for a streaming service. (Hulu)

DENVER—Virtual pay TV services have an advantage in program licensing negotiations due to their far lower customer acquisition costs, said Tim Connolly, senior VP and head of distribution and partnerships for Hulu.

Speaking on a panel focused on the virtual MVPD business at the Pay TV Show today, Connolly noted that he studied nuclear deterrence theory in a master's program. And negotiations between traditional pay TV operators and programmers present a typical model themed around mutually assured destruction.

For linear operators, which are spending as much as $1,000 to acquire customers, losing 10,000 customers in a major networks blackout could result in a loss of $10 million. 

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That’s a lot of fallout. 

With vMVPDs not incurring truck rolls and other setup costs, customer causation is much lower, explained Connolly, who didn’t expand the argument further to explain why virtual services are actually paying more for programming. 

In today’s wide-ranging discussion, which was moderated by Cheddar founder and CEO Jon Steinberg, vMVPD operatives agreed that it is the platform that determines the average age of a show’s viewer and not the show itself. 

“It really is more about the platform and not the show itself,” said Connolly, who said the average age of Hulu’s 20 million subscribers is 31.

“The reason we built PlayStation Vue was because the PlayStation audience is largely millennial and wanted a better way to watch TV,” added Dwayne Benefield, VP and head of Sony PlayStation Vue, which also has an average user age in the low 30s. 

Despite the vMVPD business having crowded up since Vue and Dish’s Sling TV debuted three years ago, most of the panelists agreed that the surfeit of virtual pay TV services has created awareness of a new service category—in short, the crowded market has helped more than it has hurt them. 

“The number of people who know we offer live service is pretty low right now,” Connolly said. “Having other people investing in the business helps build the awareness in the marketplace that lifts the rest of us.”

Added Benefield: “We’ve been around the longest, and for us, a rising tide has impacted our boat.”

Connolly, meanwhile, also discussed the role of original series in Hulu’s portfolio. He boasted that while other streaming services, notably Netflix and Hulu, have won Emmys, none had previously won a best series trophy, as Hulu’s “A Handmaid’s Tale” did last fall. 

“Original programming is very important for us,” Connolly said. “We’re following the playbook of HBO created 20 years ago, when they built their brand on ‘The Sopranos.’ … Netflix followed that same playbook.”

Netflix, of course, is spending $6 billion a year now on originals, but Connolly doesn’t think Hulu needs to be the biggest spender to create a powerful brand around original comedies and dramas. 

“We won a best series Emmy before [Netflix] did,” he said. “I’m not trying to gloat. I’m just saying that money isn’t a panacea.”