Facebook: Facing Off Against Tencent

Marketing Strategy Case Analysis:

Hulu: Redefining the Way People Experience TV

Dana Vengrow

University of Southern California

Question 1: What are the key issues in the case?

1. The television industry is undergoing significant transformation, including in advertising, distribution, and production.

a. The internet had significant impact on the business, enabling consumers to view their television shows, sporting events, and movies on virtually any device.

i. The novelty of the internet means that the television industry has become unchartered territory, as the internet is requiring a reintroduction of the industry. In turn, this makes it difficult to strategize for the growth of businesses, such as streaming services.

b. Cable customers are “cord-cutting” and cancelling subscriptions, and there is a growing demand for internet-delivered programming.

i. There is an increase in attempts to disrupt the industry in order to keep up with the quick mutation of the ecosystem. It is getting more difficult to compete and companies have to take big risks in order to survive, which also means they have the strong potential to fail.

c. With extreme and rapid transformation, companies must innovate in their service and product, as well as other business functions, including business models. With the changes in the industry, it became essential for companies to execute new and unproven business models, which is a huge risk for the company, especially a smaller one like Hulu. New and unproven business models means that there are no real business formulas to follow to make success more likely – companies are making decisions blindly, which could prove to be detrimental to the survival of any business, let alone a smaller one.

2. Competition

a. There are well-established distribution competitors

i. Multichannel video programming distributors (MVPDs)

1. Cable

2. Satellite

3. Telephone companies

b. Expanded effort in industry means fiercer competition, especially in the industry’s most competitive areas, production of scripted television programming.

c. Internet initiated companies leveraging digital technology to launch “virtual” MVPDs or vMVPDs

i. Google

ii. Sony’s PlayStation VUE

iii. AT&T

iv. Dish Network’s Sling TV

v. DirecTV’s DirecTV Now

vi. YouTube TV

d. Subscription video on-demand (SVOD)

i. Netflix

ii. Amazon

e. Programming channels (OTT)

i. HBO Now

ii. CBS All Access

iii. Comcast NBCU Seeso

f. Growing investment resulting from a desire to compete was what enabled companies to sustain “broadband” networks, but this heavy investment perpetuated the consolidation of the industry. Because of this, the top four MVPDs accounted for almost 73% of the industry’s customers (72 million to a total of 98.7 million).

i. This means that not only is the industry engaged in intense competition, but also that it is harder for companies not included in the top four to be heard and to earn a name, including Hulu. With so few customers spread among the remaining companies, Hulu must find a way to not be drowned out by the expensive advertising of the top four companies.

3. Investment

a. Fierce competition triggered companies to invest billions of dollars each year in order to produce original content and acquire viewers so that they can stay atop the competition.

i. Big companies were competing, which meant that they had a substantial amount of money that they could invest in such production, whereas Hulu did not.

ii. Companies within the industry signaled their seriousness and ability to compete by the size of their programming commitments, suggesting that Hulu was not as serious as other competitors due to their inability to commit similar budgets as Netflix and Amazon to original programming.

4. Cost

a. Expenses related to programming were among the largest cost incurred by MVPDs, as it incurred various fees including those relating to retransmission, and carrying non-broadcast networks.

i. This caused combative negotiations between the program suppliers and MVPDs, which, in turn, resulted in occasional network “blackouts” for consumers.

ii. Cost of programming and associated fees were transferred to consumers so that MVPDs could sustain themselves. This perpetuated significant increases in subscription prices.

1. Because of this, many consumers canceled their cable subscriptions, proving to be detrimental to the entire television industry.

5. Consumer behavior

a. The soaring costs of cable subscriptions caused consumers to not only cancel their subscriptions but also to find different ways to access their TV programming through “over the top” (OTT) programming services.

i. This added to the intense transformation of the television industry, and also influenced how companies should develop their competitive strategy in order to attract these flippant customers.

1. How were companies, such as Hulu, also supposed to retain a consumer’s loyalty in an industry where there is little consumer loyalty?

b. Consumer behavior and desires increased pressure for programming to be offered a la carte in order to make subscriptions more affordable.

i. Yet offering programs a la carte is detrimental to traditional MVPDs that used and needed bundling in order to sustain themselves. MVPDs survived on bundling channels because it allowed them to charge the consumer more for multiple channels when the consumer only wanted one or two channels that happened to be a part of the bundle.

1. These companies were not able to drive demand for channels, and needed to find a way to do so in order to survive.

c. Original cable programming essentially ended the large broadcast networks’ domination of the television industry, due to consumer demands for original content.

i. Cost: producing high quality original programs proved to be essential for the long-term well-being and survival of cable channels.

ii. The return on investment for Netflix’s original programming strategy had caused it draw more revenue than that of broadcast, cable, and OTT competitors. This demonstrated that original content programming was essential to success.

1. Hulu could not afford to budget for original content programming on the same scale as Netflix and other SVODs, and therefore cannot compete at the same level.

d. Illegal activity: piracy of movies and television shows increased as the internet such activity easier to conduct.

6. Hulu launch

a. With MVPDs introducing their own streaming services, there was little interest in signing on to Hulu from networks.

i. This meant that Hulu started with minimal funding, and set it on a path of competition that proved difficult for the company.

ii. The only two companies who initially signed on to invest in Hulu were NBCUniversal and News Corp., which had limited experience with the Internet. This made Hulu, which has its service based on the internet, vulnerable to inexperience.

7. Hulu ownership

a. After Hulu gained traction, Disney purchased 30% stake in Hulu. While Disney’s assets benefitted Hulu, Disney’s ABC brand was a rival of Hulu in some ways.

i. Disney also recently announced their entrance into the SVOD industry by introducing their own streaming service, meaning that Disney was directly competing with Hulu, in which they still owned a stake.

b. Other stakeholders

i. Other Hulu stakeholders also served as competition to Hulu as they offered limited streaming access to their own shows on their own broadcast networks by offering its own their self-maintained websites. They did this to acquire viewers and to benefit from advertising revenue.

ii. Competition between Hulu and its own stakeholders was a point of friction and tension, and was only detrimental to Hulu’s own business.

1. This also suggests that stakeholders could be threatened by Hulu’s expansion, possibly resulting in the removal of their backing of Hulu. This, in turn, would put Hulu’s survival at risk, as they would lose the investment of their stakeholders and also become strict competitors with those companies, rather than allies with a point of friction as they are now.

2. Can Hulu grow when its competing with its own stakeholders?

3. There was no guarantee that Hulu’s stakeholders were aligned in their interests for Hulu’s initiatives. If Hulu were to take a risk that angered, offended, or didn’t align with the interests of one of the stakeholders, then Hulu was sure to lose some of its funding. Hulu was at the mercy and will of its stakeholders.

iii. This also made possible the cannibalization of Hulu, as those companies invested in Hulu were able to introduce their own streaming services.

8. Marketing

a. With an increase in cancellations of cable subscriptions, there was untapped market potential to reach all of the consumers who were cord-cutters and cord-nevers.

b. How was Hulu, among other companies, supposed to target the cord-cutters and cord-nevers, and portray the benefits of their service over that of the many other competitors?

i. There was no pre-determined or formulated strategy for positioning in order to reach such a target market, as it was a newer market.

ii. Hulu needs to apply to both the cord-cutters and cord-nevers, without isolating the consumers exiting MVPDs, which Hulu also aimed to acquire. With a proposed target audience that was so vague and so wide, how could Hulu define a strategic and pointed marketing strategy – something that is essential to the success of a marketing campaign?

iii. How should Hulu compete in order to be heard just as much as, if not more than, its biggest competitors like Netflix and Amazon?

1. How should Hulu even go about determining such a competitive strategy?

c. Target markets were unclear besides that they were cord-cutters, cord-nevers and partially traditional MVPD subscribers. Hulu has limited knowledge on these consumers, which makes it difficult to target them.

9. Original programming

a. Original programming was expected by consumers. With only limited spans for attention, the competition for consumers was growing fiercer with the race to provide constant streams of original programming. Limited resources made this even more difficult.

i. Growing competition among companies for actors, directors, and scripts – especially those who could work for a lower budget.

ii. Cost of producing an original series is becoming similar to the cost of making a feature film. Many of Hulu’s competitors also had experience in making feature films, as well as TV shows, because they are big production companies, but Hulu does not have that same experience in production or anywhere near the same breadth of funds as those competitors.

1. Could Hulu offer original programming engaging enough to attract and retain subscribers with such a limited original programming budget?

b. There was a licensing gap and a weak value that Hulu offered. It was essential for Hulu to execute and produce a strong lineup of original programming in order to provide stronger value and bridge the content licensing gap, which would boost Hulu’s success. But this came at a huge price.

i. Hulu is a smaller company, which only allowed them to budget limited funds for original programming. Competitors seemed to have an endless supply of money to budget for such programming – how can Hulu compete with its top competitors who continue to increase their budgets for original programming?

10. Hulu Live TV

a. The introduction of Hulu Live TV poised the potential for this new service to cannibalize the company’s existing SVOD business.

b. This new service also meant that Hulu was now more directly competing with its own stakeholders than it had before the introduction of Hulu Live TV.

i. This could further perpetuate friction between the company and its stakeholders, putting the entire Hulu company at risk for losing funds if its stakeholders decide to remove their backing.

c. Could Hulu’s new offering even compete with the bigger and more established MVPDs?

d. The low $39.99 per month subscription price point was risky. Experts speculated that program licensing would cost the company about $34 per month per person, meaning that the profit margin was very slim for such a venture.

i. Was this service sustainable for Hulu?

e. Could Hulu offer original programming engaging enough to attract and retain subscribers, as well as compete with bigger companies, given that the company had no prior experience in program production and limited funds?

f. Hulu is a late entrant in this category, which could prove the venture to be unsuccessful if its survival relies on ripping loyal consumers from other providers.

11. Streaming quality

a. Many of Hulu’s competitors were cable companies that also offered internet and telephone services. With internet embedded into the DNA of those companies, it was easier for them to ensure streaming quality in their program streaming services. Hulu did have that luxury of also being an internet provider.

i. Could Hulu provide the same level of signal quality and service as established providers?

ii. Risks increase pertaining to customer satisfaction because Hulu is responsible for both the billing and the quality of service, whereas other companies were held responsible mainly for billing.

12. Revenue: originally Hulu only survived on revenue earned from advertising spots, which is not very reliable, especially if the site were to lose viewers.

13. Skinny bundles: There was a niche market that was canceling cable subscriptions due to rise in cost, but still wanted a range of channels. Some companies introduced skinny bundles, taking consumers from Hulu as Hulu did not initially offer the same service.

a. Although entering the skinny bundle business allowed Hulu to diversify their service brand portfolio, they also were met with more competition than they already faced as Hulu Live TV competed in a category that had different competitors (although some competitors overlapped).

14. Loyalty

a. No contracts made it easy for consumers to switch from one subscription service to the next with no significant switching cost.

b. With little interaction among the brand and consumers/subscribers (other than the subscribers watching content), it made it easy for consumers to detach themselves from the company, which reduced loyalty. With little loyalty, it becomes easier for Hulu to lose their subscriber to one of their many competitors.

c. Hulu’s content lacked differentiation from its competitors, meaning that the only thing that Hulu could utilize to encourage and increase brand loyalty was their original content programming and production, which was very limited. In turn, the limited original content programming translated to limited consumer loyalty.

d. No loyalty program: with little loyalty from subscribers, Hulu’s ability to leverage and implement a loyalty program that could drive retention rate among subscribers.

Question 2: Conduct a competitive analysis and identify the strengths and weaknesses of the various players, including incumbents and disruptors.

The following tables outline a general comparison and analysis of the competitor companies mentioned in the Hulu case study, including MVPDs, vMVPDs, OTTs, and SVODs.

*Source for each company’s recorded revenue: Owler. (n.d.). Retrieved September 18, 2018, from https://www.owler.com/

**Source for the recorded market shares: Share of consumers who subscribe to selected vMVPD services in the United States as of Spring 2018. (n.d.). Retrieved September 18, 2018, from https://www.statista.com/statistics/821864/mvpd-service-subscriber-share-usa/

Question 3: Hulu executives assert that success in original programming is essential and they have decided to spend billions of dollars to compete with Netflix, HBO, and others. In what ways might this original programming initiative affect Hulu’s relationship with its owners?

This original programming initiative might affect Hulu’s relationship with its owners in multiple ways. As outlined in the issues section of this case analysis, Hulu’s stakeholders also serve as Hulu’s competition, which was made more direct with the introduction of Hulu Live TV. Hulu’s stakeholders offered access to their own television shows on their own broadcast networks through limited streaming on self-maintained websites. This not only helped those stakeholders to acquire viewers, but also to benefit from advertising revenue. Essentially these stakeholders offer the same service as Hulu, albeit more limited access to programming. This inherent competition among the stakeholders and Hulu perpetuated a sense of tension. If that tension were to ever cause the stakeholders to feel threatened, especially as Hulu expanded, they were easily able to remove their backing from Hulu, resulting in the detriment of Hulu’s financials and, in turn, survival. These stakeholder-allies would turn competitors, increasing the amount of competition that Hulu would have to face. With this in mind, it also makes it difficult for Hulu to grow while competing with its own stakeholders. Further, this brought into question the alignment of values and interests of the stakeholders with Hulu’s initiatives, as the stakeholders were essentially pitted against one another as well. Hulu’s ownership made it vulnerable to the will of its stakeholders, which presented the potential for the stakeholders to work to inhibit the growth of Hulu into territory that might directly compete with them. This is the case of Hulu Live TV. Now Hulu offers a service that directly competes with the services that some of its stakeholders offer, such as NBCU’s Seeso and Disney’s new program streaming service, threatening Hulu’s financial stability built on the backing of its stakeholders. Finally, the introduction of Hulu Live TV, although it would allow Hulu to better compete with its competitors, opened the potential for a form of cannibalization, as stakeholders had the ability to end Hulu by removing their backing in favor of the growth of their own service.

Question 4: Perform an Expanded SWOT Analysis of Hulu, including its new virtual MVPD (vMVPD) venture.

1. Strategies to maximize strengths and opportunities:

a. Develop partnerships for joint ventures in order to reduce costs for each sole entity, and increase resources for funding those joint ventures.

b. Capitalize on Hulu Live TV’s ability to be accessed anywhere.

c. Diversify already extensive content to make Hulu Live TV and regular Hulu subscriptions more valuable.

2. Strategies to mitigate weaknesses and threats:

a. Invest in original content programming.

b. Joint ventures with equity partners to increase funding resources.

c. Bring in new talent with experience in production and content creation.

Question 5: Will Hulu Live TV succeed? Why or why not?

I believe the success of Hulu Live TV relies on the execution of the positioning, marketing strategy, and marketing campaign. Hulu Live TV faces several threats that could lead to the failure of the venture, but they could all be moot if this service is able to acquire and retain enough subscribers. The introduction of this service is a huge risk, but with the rampant transformation of the television industry, it has become essential for companies and brands to implement new and unproven business models in order to compete and succeed – this includes diversifying product or service portfolios in order to please consumers. The threats to Hulu Live TV that could be detrimental to the venture’s success include the increased tension between Hulu and its stakeholders as the new service more directly competes with those same stakeholders. This risk could result in losing the backing of its stakeholders, which could be mitigated by the potential increase in subscribers. Another threat to Hulu Live TV’s success is the price point. Offered at $39.99 per month, it is estimated that it costs Hulu $34 per month per person for program licensing (Exhibit 11 and Exhibit 12). This means that profit margins for this service were extremely low, and possible unsustainable. However, even with minimal profit margins, huge subscription numbers could offset little profit, as the increase in number of subscribers will increase revenue exponentially. Another threat is Hulu Live TV’s late entrance into the category. Many competitors – including SlingTV, PlayStation Vue, DirecTV Now, YouTube TV – offer the same features that Hulu Live TV does, even offering access to more channels that Hulu in some cases, and at extremely similar price points. The only selling point that Hulu Live TV can offer that the others cannot is included access to Hulu’s on-demand library. With this, however, consumers would only benefit from a Hulu subscription over a subscription with another company if the shows that are offered in Hulu’s on-demand library interested the consumer. Yet another threat to the service is the core competencies of the competitors of Hulu Live TV. Dish Network offers Sling and AT&T offers DirecTV Now, both companies which serve as internet and telephone service providers as well. With internet essential to any streaming service business model, it makes it easy for AT&T and Dish Network to offer contracted bundles of services that would include internet with their streaming service subscription. This would make the subscription to Hulu redundant for those customers served by AT&T and Dish Network, already eliminating potential consumers for Hulu to acquire. This would be irrelevant, too, if Hulu is able to develop an innovative marketing strategy and execute the marketing campaign perfectly. But the success of Hulu Live TV is riding on a huge “if,” as the success and effectiveness of a marketing strategy and marketing campaign cannot be foreseen.

Question 6: What are your recommendations for Hulu to make it a more formidable competitor in the marketplace, the risks associated with your recommendations and how you propose to mitigate the risks?

1. Recommendation: Joint venture with a stakeholder/equity-partner company, resulting in a co-funded production of original content to premiere on Hulu.

a. Risk:

i. Restrictions of brand image of equity partner in content production, i.e. co-producing content with Disney limits the type of content that would be allowed to be produced under the joint Hulu and Disney name.

ii. A joint production with one equity partner might increase tension between that equity partner with another equity partner, potentially resulting in the backing of funds from the non-included equity partner.

b. Mitigation:

i. The shared funds of both companies alleviates the solo cost each company would have if they had not produced the content jointly.

ii. The joint venture would also act as an opportunity for Hulu to gain more production experience from a production company, benefitting Hulu in their future production endeavors.

iii. The stakeholder company would further benefit from the release of the original content on Hulu rather than through their own distribution because Hulu’s success translates to the stakeholder’s success.

iv. Hulu is able to partner with each equity partner in different productions, which would also expand the variety of content produced, as well as prevent one equity partner from being angered by the other’s joint production with Hulu.

2. Recommendation: Film scouting at film festivals for new and young talent, looking to get a big break in the entertainment industry.

a. Risk:

i. Cost and time associated with scouting.

ii. Competition with other distributors looking to purchase license to films screened at festival.

iii. Losing money to licensing and contracts with filmmakers if film is not as popular as predicted.

b. Mitigation:

i. Being unknown, talent is a lower cost entity for Hulu than hiring well-known and successful talent.

ii. Hulu can introduce new and original content without having to front the cost of production.

iii. Concentrated amounts of original content in one place makes it easy for Hulu to assess films in a timely manner.

iv. Hulu is able to further diversify their offering by developing a content section of Hulu specific to up-and-coming filmmakers, which would also attract talented filmmakers to want to work with Hulu.

v. Hulu’s big name in the industry can allow Hulu to be picky about which films to purchase the rights to, reducing risk of purchasing films that would not resonate with Hulu subscription base.

3. Recommendation: Consumer research to include focus groups in order to develop strategic marketing plan to target cord-cutters, cord-nevers, and possible traditional MVPD consumers.

a. Risk:

i. With any form of consumer research, there is associated costs that can become expensive, especially for a smaller brand trying to compete with bigger brands.

ii. Can find original marketing strategy to be best tactic, in which case money spent on research is wasted.

b. Mitigation:

i. Can learn more about desired target markets in order to better appeal to them, and thereby acquire new consumers.

ii. A resulting marketing campaign that better targets the Hulu consumer can increase revenue and profit, even after subtracting cost of consumer research and campaign development.

4. Recommendation: Partnership with internet provider. Contract with provider for high-speed servers and better licensing fee rates in exchange for internet’s use of Hulu name for promotion and ability to bundle Hulu into consumer deals so as to attract and acquire new consumers.

a. Risk:

i. Attachment of internet provider company brand image to the brand image of Hulu, which might negatively affect how consumers perceive Hulu.

ii. Hulu loses revenue to reduced subscription rate for bundles provided by internet company to consumer.

b. Mitigation:

i. Internet provider able to charge consumers more for bundles if including Hulu Live TV in the bundle.

ii. Hulu’s reduced licensing fees and more reliable server use can offset the loss of revenue from subscriptions bundled with internet company.

iii. Partnership would allow Hulu extended reach in targeting a consumer base other than their own, which means they are able to market to more potential consumers than they are without the partnership with the internet company.

iv. Partnership could drive consumers to become loyal to Hulu, which offers the potential for consumers to continue Hulu subscriptions even if they decide to cancel subscriptions with Internet provider.

5. Recommendation: Host a competition for subscribers to choose concept for next original content programming executed by Hulu.

a. Risk:

i. If the results are heavily divided among concepts, then the choosing and creation of one concept could result in the isolation of consumers hoping for an alternative concept to be produced.

ii. Consumers are not producers (or rather the vast majority of them are not producers) and they do not know what makes a production successful, meaning that the selection of the consumer-favorite concept can actually be to the detriment of Hulu.

iii. Poor production of concept would result in a hit to revenue.

b. Mitigation:

i. Allowing subscribers to choose the original concept to be produced by Hulu will increase engagement with the brand, which – in turn – can lead to increased brand loyalty, especially if the consumer believes that Hulu puts the subscriber first and cares about subscribers’ opinions and desires.

ii. If the concept is chosen by subscribers, then they will be more inclined to watch the finished production and continue their Hulu subscription in order to view it.

iii. Hulu’s risk of high-expense funding for original content programming is alleviated by the idea that Hulu is giving the consumers what they want by directly asking them for their input. A company is usually successful if they listen to the consumer and give the consumer what he or she wants.

iv. This competition acts as a form of customization for subscribers, which is currently a popular trend in all industries, as the consumer is able to have a say in the future direction of Hulu.

v. Competition can earn free media exposure for Hulu and also attract new subscribers who want to engage in an experience to ‘customize’ Hulu’s offering and provide input in the original content production of Hulu.

6. Recommendation: Implement experiential marketing in the marketing plan for Hulu Live TV, and Hulu in general.

a. Risk:

i. High costs associated with experiential marketing.

ii. Possible failure of experiential marketing effort could result in potential negative press, harming brand image.

b. Mitigation:

i. Experiential marketing has been a proven and successful marketing tactic.

ii. Experiential marketing is about entertainment, which further emphasizes the entertainment factor and purpose of Hulu.

iii. A well-executed experiential marketing event can earn free media coverage, which mitigates the cost of the event and the entire marketing campaign.

iv. An experiential marketing event can demonstrate what sets Hulu apart from its competitors in its offering of video-on-demand, and live streaming coverage for Hulu Live TV.

v. An experience, which an experiential marketing event is constructed on, perpetuates emotions according to basic psychology. Emotions make events more memorable. In turn, the emotions that the experiential marketing event for Hulu will elicit in consumers will result in a top-of-mind presence of Hulu among consumers when they think of video-on-demand and live content streaming.

7. Recommendation: Implement a loyalty program for subscribers.

a. Risk:

i. Costs associated with introduction of program, as well as promotions employed in program.

ii. Unproven business model in Hulu’s business category, meaning that there is no general formula or model to follow in order to better secure success.

iii. Failed implementation can result in no increase in consumer/subscriber loyalty.

b. Mitigation:

i. Best case scenario is exponentially increasing consumer brand loyalty to Hulu.

ii. Loyalty programs are not commonplace business practices in Hulu’s category, which will set Hulu apart from its competitors in a good way.

iii. Loyalty programs can encourage increased subscription rates and retention rates among subscribers.

iv. Loyalty programs have the ability to further develop the relationship between brand and consumer, which also shortens the consumer decision journey.

Question 7: Please prepare a case summary that highlights key marketing principles as reflected in the learning outcomes and how they were applied to the case.

· Learning outcome 1: Understand the economics and motivations of the various players in the television distribution system and the ways in which the traditional ecosystem is being disrupted.

a. The advent and wide-spread adoption of the internet has transformed the entire entertainment and television industry.

i. With consumers able to more readily access content, companies have to adopt to meet the ever-changing needs and desires of the consumer. This has led to the introduction of streaming services and video-on-demand.

ii. In order to grow revenue, content-providers are increasing licensing fees, which translates to added cost for the consumer. As a result, consumers are canceling cable subscriptions.

1. This has perpetuated exponential growth in streaming category.

2. This has also spurred the introduction of ‘skinny bundling’

iii. With so many segmentations revealed by the transformation of the industry, companies need to adopt and diversify their service offerings in order to acquire new consumers, grow, and even survive.

b. Hulu in particular:

i. The founding of Hulu was based on the attempt to prevent piracy of content, which was made easier for consumers with the Internet. With no original content to rollout in the founding of Hulu, it was essential for key industry players to sign on in order to back the venture and provide content.

1. The equity partners in Hulu compete against each other outside of their relationship to Hulu.

2. In order to compete in an ever-changing ecosystem, Hulu has innovated and introduced new product and service offerings for consumers. This puts Hulu in competition with its own equity partners.

c. Digital Disruption:

i. In order for Hulu to have a successful second act, according to one of this week’s articles, “The Best Response to Digital Disruption,” there were only three opportunities for Hulu to succeed:

1. Develop new customer segments.

2. Introduce new business models.

3. Redefine the value chain.

In hoping to make a great second act, Hulu took advantage of two of these three opportunities: develop new customer segments and introduce new business models. The introduction of Hulu Live TV allowed the company to target cord-cutters and cord-nevers, as well as traditional MVPD subscribers, which they weren’t able to reach before. With this new service offering, Hulu inherently altered and introduced a new business model in order for Hulu Live TV to not only supplement Hulu Plus but to work in conjunction with it in order to increase revenue and help the company grow. This has enabled Hulu the footing needed to compete against big name competitors like Amazon Prime Video and Netflix. Further, the second article, “Finding Your Company’s Second Act” conveyed that devotion of all resources to a single, first product will result in the company’s failure. As Hulu took advantage of the opportunities presented to them with digital disruption, Hulu Live TV will act as Hulu’s second act and help the company to grow and compete.

d. Competition:

i. With so much competition it is essential for a company to diversify their service and products from the next company. In relation to Hulu’s introduction of Hulu Live TV, key issues need to be addressed:

1. Is Hulu Live TV’s $39.99 price point too low to offset licensing fees and permit a sustainable profit margin?

2. With limited production experience and financial resources, could Hulu develop original content entertaining and engaging enough to acquire new consumers and retain current ones?

3. Were Hulu’s service offerings diverse enough to compete with its big-name competitors?

· Learning outcome 2: Assess the role and cost of programming to its distributors.

a. Programming is an important and big factor in the distribution business. The consumers’ desire for programming is what MPVDs/vMPVDs, OTTs, and SVODs are modeled on. It is the streaming of the programming itself which constitutes the business of each company.

i. Because of this huge role that programming plays, content providers are able to leverage the demand for continual increases in licensing fees and contracts. This is what perpetuated hikes in the prices of contracted bundles from MPVDs, in turn resulting in an increase in canceled cable subscriptions.

ii. This cost also translates to the business model for SVODs such as Hulu and vMPVDs such as Hulu Live TV. In order to sustain a competitive strategy, Hulu must price their services for either penetration or through conscious parallelism. Not only does this pressure Hulu to set a low price for their subscription service, but also for their live content streaming. Yet they still need to provide content programming, which comes at a price. This has affected Hulu’s profit margins, as the set subscription price can only offset the price of program licensing fees to the minimal degree.

iii. With the two previous mentioned points, it becomes clear that the cost and role of programming influences the business models of individual companies as well as the companies’ competitive strategies as they struggle to sustain themselves.

iv. An additional point to be mentioned is that consumers demand original programming, which can affect their loyalty to a brand. Yet, with great quality also in high demand, original content programming is increasing in expense, making it difficult for smaller companies, like Hulu, who have more limited funds to sustain themselves, let alone compete with their bigger name competitors.

· Learning outcome 3: The strengths and weaknesses of the strategies of the various players, including incumbents and disruptors, are previously listed in question 2 in the competitive analysis.

· Learning outcome 4: Recommendations, and associated risks and mitigations as they relate to the learning outcomes and how Hulu can continue to create and sustain a competitive advantage in the marketplace are listed previously in question 6.

· Case summary:

a. The internet brought on the digital transformation of the entertainment and television industries.

i. As the internet provides better access to information and to varying forms of entertainment, it became essential for the television industry to transform their business models.

ii. New and unproven business models increased risk for companies.

iii. To combat increase in piracy, Hulu was founded.

b. Increased demand for original content programming caused companies to compete in an arms race to produce the best original content and acquire new consumers, as well as retain current consumers.

i. This caused an increase in budgets allotted for such programming, especially in companies with the resources to account for such budgets.

ii. Hulu, a smaller company, lacked similar financial resources in order to compete with its big-name competitors in original content production.

c. Increased demand for access to programming led to an increase in content-provider licensing fees associated with contracts to stream their content.

i. This perpetuated an increase in price points for cable subscriptions in turn resulting in a flood of cable subscription cancelations.

1. Skinny bundling was introduced by MVPDs.

ii. Hulu saw an opportunity to transform their business model and develop new customer segments by introducing their own version of skinny bundling and live content streaming.

d. Hulu Live TV rollout

i. Hulu opened itself to obtaining new consumers, but also increased the competitive field.

1. This includes competing with its own equity partners.

ii. Price point was questioned as being sustainable as it only allowed for thin margins due to high cost of fees associated with program licensing.

iii. Hulu needed to determine the best strategy to market to their new target audiences, the cord-cutters, cord-nevers, and traditional MVPD subscribers.