HULU Murali ErraguntalaJosé Enrique Martínez

MTDB 2010

IntroductionMarket and Company Analysis

Correct Definition of the problem

Alternatives and Solution

Action Plan

Market Analysis

Potential Entrants

Supplier Power

Buyer Power

Substitutes

Rivalry

5 Porters’ Forces

HIGH HIGH

MEDIUM

HIGH

HIGHContents Providers

Forward Integration

Traditional TV

More Choice of Product

Less Asymmetric Information

Less Switching cost

TV Industry

Higher CPM

Huge Capital Requirement

Economies of scale

Contents Providers

Market AnalysisMarket Size

130 million unique users who downloaded 10 billion streams$1 billion was spent on advertising

Market Profitability

Market trendsStrong growth in popularity of online video platformsBroadband (75% of penetration )and Mobile industry.

Key success factorsIncreasing the availability of online contentEnhancing the user experienceLeveraging the capabilities of online mediumAbility to create two-sided network

Market Growth Rate

BMG Matrix

Cable TV Public TV

Internet TV

$0,0225

$0,105

$0,015

$0,0225

$0,0225

$0,105

Industry cost structure: Value Chain

$0,15$0,007

5

Software (flash application)

Hardware

Content(70% of Ad Revenue)

Packaging & Hosting

(15% of Ad Revenue)

Distribution & Sales

Revenues at 40$ - 50% per CPM

HULU

Marketing StrategyTargetingSegmentation

Positioning

Differentiation

Product

Price

Place Promotion

TargetSWOT

Customer

Company

Competitors

The market

CustomersCustomers

CompanyCompany

CompetitorsCompetitors

Users, Advertisers and Content Owners

Owners: ABC, NBC, News Corp. and Providence E.P.

Youtube, TV Everywhere, Veoh, TV.com, Metacafe…

The marketStrengthStrength

Weakness

Opportunities

Ability to Leverage online platformOwners Leadership and innovation culture

ThreatsThreats

Unique source of revenue ( ads support)

Advertising market $60B.Broadband and Smartphones (3G and 4G)

Lack of exclusive contractHighly competitive market

The market

PositioningPositioning

AggregatorProfessional contentsFree premium content

DifferentiationDifferentiation

fsdfTargeting

Segmentation

Self-service content distributionAdvertising StrategyHigh Speed internet

usersBase Subscribers

High Speed Internet Users

(40 million)

Base Subscribers(64 million)

Premium Subscribers(41 million)

The market

Product and ServiceProduct and Service

CPM from 40$ to $50.

Price

Place

PromotionPromotion

Embedded professional contents embedded on internetSophisticate advertising tools

Hulu.com and affiliate sites.

Events: Super Bowl; ABC (25M$)…

Company cultureMission: “focus on helping users find and enjoy the world premium , professionally produced contents when, where and how they want it”.Emphasizing frugality, meritocracy, ownership and other key valuesLeadership styleGuide Missile culture (Trompenaars).

Definition of the problem

What are the problems?

TV EverywhereAt least 92% of Americans qualify to watch this for free onlineComcast and Time Warner (70% of the cable market)

Digital ConvergenceUser viewing habits (300 minutes on traditional TV Vs 10 minutes on internet TV)25% less load on internet TV advertising.

What are the problems?

Digital Convergence – Is Industry Ready?Increased viewership by 20%Revenue loss per 1000 viewers for an hourly content on internet TV is 280$ (Approximately)

Suggested Alternatives

Suggested Alternatives

Option 1 – Continue Advertising Model Pros

Advertising markets is 60$ billionHulu can maintain a unique position of offering premium content for freeSame level of offering for all the customers

ConsSingle revenue streamRisk of alienating premium content providers like HBOWindowing issues

Suggested Alternatives

Option 2 – Free + Pay-per-view Model Pros

Dual revenue streamsThis model will be of interest to premium content providers like HBO

ConsHulu will lose its unique value propositionBuyers might not be willing to pay for the same content twiceClear distinction of offerings between free and paid services

Suggested Alternatives

Option 3 – Join hands with “TV EveryWhere” Pros

Hulu can thwart competitionPossibility of exclusive contract with content providersAccess to cable subscribers of Comcast and Time Warner

ConsHulu might become a mere platform that offers online videoValue proposition of Hulu and “TV EveryWhere vary considerably.

Hulu “TV EveryWhere”Target Audience Broadband users (40

million)Cable subscribers (77 million)

Windowing Period Small LargeAds Fewer Same as TVDuration of Ads Shorter Longer

Suggested Alternatives

Option 3 – Join hands with “TV EveryWhere”

Windowing (31%)

Fewer Ads (26%) Picture Quality (22%)

Shorter Ads (20%)

0

1

2

3

4

5

Hulu"TV EveryWhere"

Is “TV EveryWhere” really a threat?

Chosen Alternative

Option 1: Continue with Advertising Model

Business Strategies

International Expansion

Business Strategies

Exploit Long-tailCreate two-sided networksEnhance user experienceContinue innovating new tools like “Hulu Desktop”Make the content available in Mobile and Other Devices

Business Strategies

Targeted Advertisement

Business Strategies

Targeted Advertisements (contd..)

Plan of action

Action Plan

Actions Time Horizon Resources Expected Revenue

Diversification (UK)

6 – 12 months 1 country manager and 2 sales personCost: $250,000/year

24$ million

Market Penetration

6 – 12 months Advertising Manager(s) from traditional TVCost: $300,000/year

40$ million

Thank you

FinancialsDiversification

USA statistics after 1 year of inceptionUnique viewers/month: 40,000Average minutes viewed per month: 60 minutes.Total TV viewers: 110 million

In UKTotal TV viewers: 30 millionExpected statistics after 1 year of inception in UKUnique viewers/month: 10,000Average viewership/month/viewer: 60 minutes

So the average revenue per viewer per month is $200.So the total revenue is 10,000 * 200 * 12 = 24$ million

FinancialsMarket Penetration

Hulu is currently using only 60% of the advertising inventory.

Our strategy is to increase the usage by 20%Hulu.com. For this purpose, we would wish to hire advertising managers in traditional TV who has better relationship with advertisers. 120$ million revenue in 2009 with 60% usage of advertising inventory. With 20% increase, we can increase the revenues by 40$ million.