At the moment, Mike Hopkins has the two hardest jobs in online video. The first is as CEO of Hulu (its third in a year and a half), where he’s responsible for a growing over-the-top video business that competes with juggernauts like Netflix and upstarts like Amazon Prime. And his other job is, well, as CEO of Hulu, where he looks out for the interests of owners Fox, Disney and silent partner NBCUniversal, three linear TV giants with huge broadcast networks and dozens of cable channels between them.
It helps that Hopkins has a background negotiating some of the toughest deals in the business. He was president of distribution for Fox Networks, negotiating compromises in the increasingly bitter world of affiliate fees between the Fox channels and MSOs like Dish and Comcast.
“The distribution world is pretty rough-and-tumble in terms of getting those deals done,” says Hopkins, who has had to slide into home more than once. In October 2010, he signed one of those last-minute distribution deals that have come to characterize the industry, averting a blackout of Fox’s owned-and-operated broadcast stations for some 4 million Dish Network subscribers just as the satellite service was set to go dark. The previous week, he had stared down Comcast during a blackout in the New York area.
It wasn’t fun.
“It’s gotten worse and worse,” as Hopkins puts it. “The last three or four years it’s been really serious. The numbers are huge and the margin compression that the distributors have is very real.”
The last thing Hulu wants to do is contribute to that compression. So when Hopkins, formerly a member of the Hulu board for Fox, was given the task of managing the entire joint venture—which is constantly in danger of competing with itself—he had the necessary experience of having represented his company’s interests in a tense environment.
And there’s one important reason to keep Hulu afloat from its owners’ perspective: Revenue is on a serious upswing. Last year the company crossed the $1 billion threshold, as Hulu says it has attracted 6 million subscribers to its Hulu Plus service, now an integral part of its long-term strategy, a strategy Hopkins has had a direct hand in shaping.
Last year, Hopkins was on the Hulu board when its owners decided to reverse the internal economics of its advertising. It was a call that settled some longstanding grudges between Hulu and the ad sales reps at its owners, who had never been that happy with Hulu’s buy-your-own-avails approach to its owners: Hulu would no longer own all the ad inventory on its owners’ content and sell part of it back to them. Instead, NBCU, Disney and Fox now directly sell about 90 percent of the inventory on shows they stream on Hulu and sell the other 10 percent to the service.
Though it may sound like a raw deal, Hulu has something no other digital video outfit offers: content from three of the Big Four broadcast networks the day after they air it, as well as fresh content from other networks, including The CW. That content and Hulu’s slate of original programming—including The Awesomes, an animated series created by Seth Meyers, and The Wrong Mans, a British action-comedy—help to drive all-important subscriptions.
The question, of course, is whether a service that provides TV content without a cable subscription can ever be good for programmers who rely on the dual-revenue stream of cable fees and advertising. Hopkins says it is, and that cord cutting is a serious misnomer.
“Nobody can stream Hulu or any of our competitors unless they have a broadband connection,” and frequently, broadband providers also sell cable services, he notes. “We have to work very closely with all of those players, and we’re actively talking to [the multichannel video programming distributor, or MVPD] side, working on them to sell Hulu Plus as part of their offering.”
That is an attractive proposition, potentially. It is costly and time-consuming to develop a user interface and a set of content agreements for TV Everywhere, and Hopkins has experience dealing with the specific needs of cable and satellite companies.
Consumers may not love cable operators, but there’s no denying their power. “They have more people buying their product per capita in the U.S. than anywhere else in the world at the highest prices in the world,” Hopkins says. “We want to work very closely with them. And the majority of our customers are pay TV customers as well. We’re a complementary product for them.”
That last item is a slightly harder sell. Hulu, after all, is one of two or three services that can be cobbled together to form an ad hoc cable subscription that costs a fraction of the price Time Warner or Cablevision demands, and that’s exactly what makes its season-to-date content so valuable. “There are people who are doing that,” Hopkins concedes. “But that’s not our main objective. We’re not trying to get people to cut the cord.”
Hulu’s strategy for its content partners is simple: Use us to drive live viewership. “They have far more girth in terms of programming than we do because they have programming from so many other sources, as well as acquisitions and cable sources,” says Mark Pedowitz, president of The CW. Hulu, he says, gets fans-to-be current, and since his network skews young and favors on-demand content, Hulu is a good complement.
“I’m still a broadcaster,” says. “If broadcast isn’t the place [they’re watching], we hope to have the viewer watch our shows in a way that will bring them back to the same-day telecast.” And it’s not just sub fees. Anything that increases viewership gives Pedowitz and his ad-sales team more GRPs to sell, and TV GRPs are worth quite a bit more than the digital clicks and views on The CW’s website.
Make no mistake: The digital video world wants a piece of that sweet TV money. That is, after all, the whole point of the Digital Content NewFronts, which kick off in New York this week. As the cable and broadcast networks hawk their wares at a discount against future success, digital companies are demanding higher rates for that elusive premium video. It’s not the easiest pitch.
“Efficient is not a word I’d put in front of any premium digital video,” says Dave Campanelli, svp, director of national broadcast at Horizon Media. “There’s a huge amount of online video, but true premium online video is fairly scarce. And they can charge a fairly high CPM for it because it sells out. But you can’t really compare it to television.”
Hulu offers opportunities not found in a programmatic auction. At last year’s DCNF, it announced a lineup of programs that would only get the green light if they had a sponsor seeking deep integration. It got several takers. The game show Money Where Your Mouth Is, hosted by Jay Mohr, landed a sponsorship from Campbell’s, while Subway signed on for a series about part-time restaurant workers called 4 to 9ers and Chipotle sponsored a half-hour comedy about the horrors of inorganic food called Farmed and Dangerous.
Peter Naylor, Hulu’s newly minted head of ad sales, is enthusiastic about the strategy. “That’s going to continue,” he says. “We live in the era of paid, owned and earned media, and marketers increasingly want to figure out owned and earned—they know paid.”
Hopkins says the project will continue, but he’s wary. “You’ve got to be careful that you’re not just doing it as an infotainment show, that it gets over that quality bar,” he says.
The CEO thinks the time has come to emphasize Hulu’s virtues as a walled garden à la HBO and Netflix. “What we spend a lot of time talking about is that we’re not in 100 million homes,” he says. “We have 5, 6 million subscribers or so. Our bar is not just to get people to watch as though they’re finding out what channel it is, but to get people to subscribe.”
Of course, the surest way to get people to subscribe is to have good product nobody else has. Hulu’s record is scattershot—some of its series, including The Awesomes, have made a splash with viewers, while others, like BBC America co-production The Wrong Mans, have hit more with critics. But Hulu doesn’t yet have a big, bragging-rights show that gets on Emmy ballots , and the market is viciously competitive. “We haven’t done a House of Cards-type show yet,” Hopkins admits, “but we will. We will be pretty aggressive in making high-profile shows that can cut through.”
That is becoming a more urgent concern not just for Hulu but everyone in the original content space. There is a lot to cut through, and good scripts are at a high premium. “It’s not just the AMCs and FXs on top of the old guys,” says Campanelli. “It’s WGN, which has Salem and got big numbers, BBC America, which premiered Orphan Black to big numbers—it’s everybody. Everybody’s doing their version of original programming. You need the loss leader that gets people in the door.”
Hopkins agrees: “Maybe you don’t necessarily have to make it 8 to 10 million [viewers] an episode, but you do have to put the resources behind it to help it succeed.”
One resources is Craig Erwich, late of Warner Horizon TV, where he developed The Voice and 24, among others. He’s Hulu’s head of content (as of April), and his mandate is to find the next big hit.
Which is not to say there haven’t been successes. The Awesomes is headed into its second season, and its characters have become unofficial mascots for the streaming service. “They increased our budget considerably for Season 2—so that’s got to be good, right?” says Jack Sullivan, CEO of Broadway Video, which produces the series along with IFC’s Portlandia and NBC’s Saturday Night Live. “We’ve been able to hire more writers.”
Then there’s the all-important process of making sure everyone knows you’ve got something big and cool.
“There was a lot of marketing around House of Cards,” says Shelby Saville, digital investment lead at Spark. “They marketed it like it was a broadcast show or an HBO show. Frequently, companies will only market within their own platform.”
Accordingly, Hulu is filling the airwaves with ads for new comedy Deadbeat, including spots on Adult Swim, Comedy Central and ESPN and events at South by Southwest and comedy clubs, where co-star Brandon T. Jackson performs sets sponsored by the show. (The Awesomes is getting a similarly enthusiastic promotional push.)
The question that remains is whether that content can scale as Hulu moves more of its emphasis toward its paywall. There are perks to subscribing to Hulu Plus—a huge suite of ad-free Criterion Collection movies and tons of broadcast content that won’t come to Netflix for years. That means the ad model relies not on viewership in the jillions but on what Naylor calls “a lean-back environment” around that long-form programming where the default state is marathoning your favorite show in the evening or watching anime on autoplay while you’re at home with the flu.
That’s what brings the television networks to Hulu. True, every broadcast net has its own website where it controls the ad inventory and sells it as an added value on top of linear television buys. But Hulu is that unique destination where a viewer might tune in for an old episode of New Girl, then switch over to Arrow since it’s positioned nearby in the player.
Hopkins has understood that strategy since his days selling FX, of course: build audience on acquired content, spend liberally on originals, build more audience, cut back on acquisitions. But like most business models, the more it’s used, the faster it has to work. Originals, as Campanelli points out, are vital.
“It gives clients a reason to buy Hulu—they have libraries of shows and movies, and that’s all fine,” he says. “But I can buy TV Land if I want to buy reruns.”
With Hulu’s originals, Hopkins is reworking a fragile enterprise. And as everyone knows, when you’re building a house of cards, you can’t afford to slip up.