Hulu has become a household name. Its premium content has essentially made the 12-year-old company synonymous with streaming. And because it’s one of the only platforms of its caliber to offer advertising, the service has become a must-buy for marketers looking to dip their toe in streaming TV.
But that ubiquity might be threatened as powerful new rivals gear up for Hulu, which Michael Law, president of Dentsu Aegis’ Amplifi, calls “the Kleenex brand of OTT.” (Over-the-top, or OTT, is a term for delivering content over the internet, rather than through cable or satellite.)
Two new high-profile streaming services from media behemoths WarnerMedia and Comcast are coming out this year, pumping up the premium inventory in the marketplace.
Their launch comes as Hulu wrestles with an internal shakeup following Walt Disney taking full control of the company in 2019. The realignment has ignited questions about what Hulu’s content offering will look like over the next few years.
Amid these changes, Hulu is taking steps to protect its stronghold in the marketplace by investing in an ambitious if elusive goal: reinventing the ad model for streaming. If streaming really does upend the $70 billion TV market, Hulu wants to be in position to take a controlling share.
To this end, it has tapped ad veteran Scott Donaton to lead its new creative division. Dubbed Greenhouse, the studio’s goal is to help brands think differently about how they advertise in streaming versus linear TV.
“TV has changed dramatically in the streaming era, but advertising has not,” says Donaton, who most recently served as global content and creative chief at Publicis Media’s Digitas. “Streaming represents an incredible opportunity to reset and redefine what advertising can be going forward.”
Beyond traditional storytelling
Hulu chose the name Greenhouse for the studio because “it is a space used to cultivate and nurture growth, and that is exactly what we are setting out to do,” Donaton says. (It’s also a nod to Hulu’s identifiable green branding color.)
While Hulu has been testing various ad formats and has long boasted a lighter commercial load than linear TV, it’s stopped short of completely overturning the interruptive commercial experience that was birthed by traditional TV in the 1940s.
The company is making a larger investment in creative resources in 2020 because it believes marketers are now ready to shift dollars into streaming and are open to move beyond traditional storytelling, says Peter Naylor, senior VP, head of advertising, Hulu.
Donaton is charged with scaling and creating new opportunities for advertisers outside of 15- and 30-second spots.
Initially he will look to Hulu’s upcoming original food programming as a place to create uninterrupted, non-traditional formats. And he sees similar opportunities around adult animation, another genre where Hulu will debut originals in 2020. The fandom around the category, Donaton says, makes it ripe for brands to develop adjacent content.
And while Hulu will likely always sell 15- and 30-second commercials, even those won’t necessarily look like the current ad break, Donaton says. He envisions a not-too-distant future where “traditional” pods will be replaced by sequential storytelling across breaks, extended episodes of shows and deeper dives into the content. Donaton and his team will spend the next year working to make brands a part of these experiences and will look to strike multiyear deals with advertisers that will be involved in helping shape the streaming model.
Hulu will add about 20 new employees to work specifically with brands. The company has already hired Liz Levy, who came from Complex Networks, to serve as VP and head of creative for brands, and Brandon Pierce, a group creative director at Droga5, who has signed on as VP and creative director at Hulu.
This investment could be an important differentiator for Hulu as the impending launch of Comcast’s Peacock and WarnerMedia’s HBO Max could threaten the company’s position in the marketplace. While specific ad plans for those emerging streaming services are currently unclear, Peacock is expected to debut later this year with 10 or so ad partners, while HBO Max will reportedly launch ad-free and won’t begin including ads until 2021.
Naylor says he isn’t concerned about the budding competition. But while Greenhouse was not established in response to new streamers, it surely comes at an important juncture.
Hulu Chief Marketing Officer Kelly Campbell says what makes Hulu unique is, “we are not an entertainment company trying to build the technology to enter the space; we aren’t a technology company trying to bring in the entertainment. Hulu is, and always has been, and was created as a company right at the heart of the two.”
Hulu started in 2007 as a joint venture between Comcast, Time Warner, 21st Century Fox and Walt Disney, to serve as an aggregator of recent episodes of TV series. It was this mix of broadcast and cable series and, later, Hulu’s own originals, that made it attractive to advertisers. The service had more than 28 million paid subscribers as of November 2019.
Hulu has become a safety net of sorts for brands that want to get their feet wet in the so-called over-the-top space.
“They have been in a really strong position as the easiest first step away from linear TV into the digital and OTT world for advertisers,” says David Campanelli, exec VP, chief investment officer, Horizon Media. “Even before OTT existed and they were primarily on desktop, they were the easiest, safest extension for what we do in linear.”
Content mix change
Campanelli says Hulu is bought heavily by advertisers as a result, and in some cases, it is overbought. Hulu reported $1.5 billion in ad revenue in 2018. Hulu’s revenue is now reported as part of Disney’s overall revenue and won’t be disclosed outside of quarterly earnings reports.
But Hulu’s future is being thrown into question since Walt Disney took full ownership of the company last year.
While there are no immediate plans to change how Hulu operates, it’s expected Hulu’s content mix will be disrupted. NBC programming is still available on Hulu and there are long-term deals in place, but agency executives believe that at least some of the content will eventually move to NBC’s Peacock service, which launches in April. This could eventually leave Hulu as a Disney-focused content engine, serving as the home for the Mouse House’s more adult-skewing programming from the likes of ABC and FX, leaving Disney Plus as home to its more family-focused fare and big franchises like Marvel.
FX Networks' Chief John Landgraf said during the Television Critics Association press tour last week, that he believes Hulu will ultimately make the FX brand more valuable.
But at least in the near term, Hulu’s advertising business, led by Naylor, will continue to operate separately from the larger Disney organization. And the streamer still intends to host its own upfront presentation in the spring, Naylor says.
By the time of the spring dog-and-pony show, Naylor says he will have concrete opportunities for how advertisers can work with Hulu’s new creative studio.
None of this, of course, is necessarily revolutionary. Traditional media companies have been setting up in-house creative shops for years, some with little success. But Donaton says Hulu is the first pure streaming service to do so.
“We ultimately believe there’s a uniqueness to our mission and ambition since we feel a responsibility to help brands redefine what advertising and marketing can be in the streaming era,” he says.
Hulu itself has spent the last year or so introducing new ad formats to the marketplace, allowing brands to reach audiences during more natural breaks in content, like when they pause a show or in the midst of binge-watching a series. Naylor has previously said he intends for 50 percent of Hulu’s ad revenue to come from non-intrusive formats by 2022.
Hulu’s commercial load is about half of the 15 minutes per hour on broadcast and 17 minutes on cable. It has also capped breaks at 90 seconds.
But perhaps its greatest strength is the data it has amassed over the past decade on how people watch streaming TV and respond to advertising in this setting.
It’s with this insight that Hulu developed its pause and binge ad formats. Hulu saw that users paused content about 30 million times per day, Naylor says. This creates a natural break in which to reach viewers when they are more susceptible to brand messaging.
It’s this type of data that has made marketers interested in experimenting with new formats.
For most brands, streaming is still a small part of their ad buy. While OTT accounts for 29 percent of TV viewing, it’s only 3 percent of TV ad budgets, according to Magna Global.
One reason why marketers aren’t allocating more of their budgets to OTT is because it is still unclear exactly how audiences want to receive ads while streaming. Brands are hoping Hulu will have some answers.
Georgia Pacific’s Sparkle paper towels is testing Hulu’s binge format, rewarding viewers who watch three episodes or more of a series with an ad-free episode.
“We don’t have a lot of data about what’s different about the space. The Hulu experiment gives us insight into how consumers are engaging with our messaging. We can learn more about what is different here and then adjust our content accordingly,” says Jason Ippen, VP, integrated brand building, Georgia Pacific.
Similarly, Kellogg Co. is running binge ads for its Cheez-It brand to “understand how consumers are receptive to the message and how to adapt our creative for streaming,” says Gail Horwood, chief marketing officer, Kellogg North America.
Test and learn
Donaton says he will build out ad opportunities based on what the data shows is the best experience for consumers; he is not creating an ad model designed first for marketers.
There is certainly more of a willingness from advertisers to test and learn, but they also want to “ensure that we are all comfortable with the basics” before moving on to innovation, says Hayley Diamond, exec VP, U.S. digital investment and partnerships, Publicis Media.
Ad frequency has been one of the biggest concerns. And while Hulu has put caps in place to make sure viewers don’t see the same ad over and over, there are still issues.
Georgia Pacific’s Ippen says the ad community is still a long way away from having a real concrete understanding of what receptivity viewers have to different types of messaging.
Hulu CMO Campbell compares the ad creativity coming to streaming TV to social media early in its inception.
“When social entered the space, as marketers we asked, ‘Do we use our TV ad or our digital ad?’ We were slapping our creative into social,” she says. “Then over time social developed its own creative and lines of budget and body of work. Scott and his team will really be working to create those experiences with that viewer obsession that will allow our brand and other brands to break through in this crowded landscape that’s native to the space and technology.”