Q&A: Hulu's Peter Naylor on Selling Stephen King (and the NewFronts)

Last year around this time, seasoned ad sales exec Peter Naylor was heading into the annual Digital Content NewFronts with a new gig. He had been recently appointed Hulu's senior VP-advertising sales.

Now the former digital ad sales exec for NBCUniversal is heading into the 2015 NewFronts with some promising content to sell. In particular, Hulu is seeking advertisers for its upcoming J.J. Abrams-produced and James Franco-starring adaption of Stephen King's JFK assassination novel "11/22/63."

In an interview with Ad Age -- ahead of his talk at the Ad Age Digital Conference 2015 in New York next month -- Mr. Naylor teased Hulu's NewFronts plans, laid out a few advertising opportunities in "11/22/63" and explained why Hulu exited the branded content-creation business late last year.

The transcript has been lightly edited for length and clarity.

It feels like Hulu's been quiet on the advertising front this past year. What have you guys been working on?

It's funny because I feel like we have done a lot of work that advertisers can benefit from, even if they might be seen as ad announcements. For example, you gotta start with content. All the acquisitions we made -- whether it's Discovery Networks, we have every episode every created of "South Park," we just announced every episode of "CSI" ever created is with us -- so you have all that content, and then you have our originals. We're doing a big project with Stephen King about his novel "11/22/63" produced by J.J. Abrams and then James Franco is going to star in that. You can't talk about big TV without considering that. Then even if you look at the other part of the spectrum, which is all the YouTube creators, we did a deal with Freddie Wong. And we'll have more of those announcements soon. We might save them for the actual [NewFronts] event on April 29. So that is really good for marketers because I can sell them sponsorships and adjacencies and all that good stuff.

What I've been really working on quietly in the background is building our programmatic stack. And for us programmatic means not just media automation, but more interestingly for marketers is the ability to use big data to make better targeting decisions.

In what ways?

A lot of marketers want to bump their databases up against our database, find the right person and serve the right ad to the right person. That kind of innovation to me may not be an interface innovation, so much as it's a targeting innovation. The user may never see it, but hopefully there's just this feeling that I'm always being served relevant ads.

And that's a big deal because it's for ads against TV content?

Right. Relevance is what it's all about. People who say 'I hate ads' -- they don't hate ads, they hate irrelevance. And if we can solve that problem with data, that's great. Then they're not intrusive, they're entertaining or informational. So from programmatic to data to the content, all those things allow me to go to market with a lot of confidence.

So how are you planning to sell "11/22/63" to advertisers?

"11/22/63" will probably be out around this time next year, if not a little earlier. Maybe January. So we've got time. The principal photography starts in May in both Dallas and Toronto. A lot of things we're thinking about include pretty conventional ideas like integration, sponsorship and looking at -- for lack of a better word -- shoulder programming, or webisodic programming. Just short-form stuff. Our menu would be things like "Anatomy of a Scene," "Anatomy of an Episode," director's cuts. None of that has been set, but that's the menu we'll be looking at with our partners at Warner Bros. They know that we cut the show with conventional commercial breaks. And we're going to want to do what most big TV does, which again is integrations, sponsorships and shoulder programming. There's one thing that I'm thinking about that I can't reveal before the upfronts.

Hulu's been doing originals for a few years, but the slate keeps getting bigger. How are you thinking about selling originals compared to the shows Hulu gets from TV networks? Do you think about them differently?

Well, a lot of our content providers have agreements that we don't sell shows specifically. A lot of the content we acquire from companies, they've got their own grown-up sales forces. So I think the companies like that we're a distribution outlet, but they don't want us to conspire against their sales forces. As a result, we sell audience-centric packages, genre-centric packages and big bundles of shows. And the market seems to be fine with that. With the originals, I am allowed to sell show-specific, and that gives me the opportunity to sell sponsorships and integrations in a way that we don't into the content that's acquired.

You mentioned earlier the ability for a marketer to bring in its own dataset and match it against Hulu's. How does that work?

To be clear, that's the technology stack I'm building. We're very much in progress in building a programmatic ad stack to transact in a programmatic video marketplace. Is that too much lingo?

Eh, I used to cover ad tech a lot.

So the promise is any marketer who has a dataset, the theory is you bump up their dataset against our subscriber base, we find the matches, we serve the matches one piece of creative and serve the people who aren't a match another piece of creative.

Hulu has two audiences: the people who watch videos on the free service and those who pay a monthly subscription for Hulu Plus. Both groups are shown ads. Do you sell them differently?

The Hulu audience is the Hulu audience. We sell all together. More to the point, we don't differentiate between a desktop, mobile or connected-TV user. When we go to market, we sell those impressions across.

So the number of ads people are shown is the same?

Yes, the ad load is the same on different platforms.

What about free Hulu versus Hulu Plus?

Free Hulu is a heavier ad load than the subscription model.

Are there major differences in that ad load?

It's the same advertisers. On the free service, it might be three ads per pod [commercial break]; on the paid service, it might be one or two. And that fluctuates with time of year, and frankly it can fluctuate with pockets of unsold inventory. That goes back to yield management. Where can we go ahead and lower rates to stimulate demand and where can increase rates because we're sold out.

I spoke with a media buyer recently, and Hulu came up. And this person said they're not able to get as much inventory as they want from Hulu. And other people I've talked to said a big push for Hulu is to get the free Hulu video player embedded on as many sites as possible to increase the number of impressions for the free service. What can you tell me about what they're referring to?

Who's the buyer? Because I want to make sure they know I can sell them.

So you look at an election year. Last year there are candidates in New Hampshire that want [to buy ads against viewers in] Southern New Hampshire. This is all I have in one town in Southern New Hampshire, so you get constricted that way. Depending on the geography or the demo, maybe we run into that.

On the second question, we were built on proprietary technology because we wanted to control the user experience and make sure it was beautiful for the user. And we needed to build for all these platforms, rather than be reliant on a third party to help us plug into all the living-room devices. So when it comes to having other people's players take our content, that gets back to talking with the content owners and making sure everyone's comfortable. There's opportunity there, but it's still in progress.

Hulu rolled out an 7-second pre-roll ad a couple years ago. Now Hulu's former CEO Jason Kilar's new streaming video company has adopted a 5-second pre-roll. Is there a trend toward shorter video ads?

We were early with it. The market still likes their 15s and 30s for a couple reasons. One, they run on TV as well as in the digital space, so they can travel. Second, it's a media math challenge. If you're an agency planning group and you're trying to figure out you're gross rating points, you're currency is 15s and 30s. So if I show up with 7s or 8s or 10s, they're like, 'This doesn't fit our model.' So there's a little bit of inertia built into the entire system for the old model, and different-length ads could be creatively called for. But it's still hard in an era of accountability for people to say, "Well, how do I make sense of what a 7-second ad costs and how much value I should put on it?"

You mentioned advertisers taking their TV spots and repurposing them online. But is there also a need for advertisers to think about digital-native or even Hulu-native ads?

It's a reasonable conversation to have. Most people want to spend their money on media and not creative, if they can get away with it. You can give me 10 cool, new companies, and if they all have 10 different ad models, that doesn't scale very elegantly. The nice thing about 15s and 30s in video environments is that you can run those in a lot of places.

Late last year Hulu restructured its branded content division and stopped creating standalone programs specifically for brands. That seems to go against the tide as publishers like BuzzFeed and Vox Media open up in-house agencies to create content for brands. Can you walk me through the rationale?

Everyone's running their own business, and we decided the business we want to be in is more branded commercials. When I say commercials, you hear that and think 15s, 30s and 60s, as opposed to branded content. We're creating television shows, and there's a lot of people creating branded content. So I'm not saying we couldn't be an outlet for longer-form branded content; it's just that we're not going to create it. That's not our focus. We will create integrations, sponsorships and branded commercials, but long-form branded content, there's so many people doing it so well. We could potentially be a distributor for that. It's a subtle but important shift we made.

Lastly, NewFronts. What can you tell me about the sales strategy for this year's NewFronts talks?

The NewFronts presentation is one day, an hour and a half. Then the upfront market goes throughout the summer. We're very much talking to broadcast buyers and their clients about our core offerings, and the idea is to figure out a way for them to put money down in advance. And we try to secure their commitments, and in exchange we give them fill-in-the-blank, cost-per-whatever. It could be completions, viewability, sponsorships, seasonal tentpoles. Pretty much anything scarce is where we'll try and transact.

One thing I remember from talking with media buyers during last year's NewFronts season is that many of them wait until after the TV upfronts to get their NewFronts deals done. The window's closing each year, but there still seems to be this holding pattern to the NewFronts until the TV upfronts. Is that something you expect this year, and what can you do about it?

The people who transact in the upfronts, if you transacted last year in the upfronts, you're already having conversations right now about what to expect, what do you need, what should we be talking about. Everybody's doing a needs assessment. Some of our customers will go in course with TV, and some will go broadcast, then cable, then digital. It's really case by case. So as a publisher we go out and assess the market and where the market's going to turn.

What's your assessment so far for this season?

I think TV's going to continue to be fine. Viewability could also constrict supply and prop up TV. That might offset the explosion of available content in digital. So many people -- whether it's magazines, TV networks, pure-plays like us -- everybody's creating more and more video. They're trying to attract TV replacement dollars. So as there's this explosion of avails, there's also a contraction because of viewability. At the same time, television continues to be very time-tested medium. That's a long way of saying, I think there's going to be another healthy upfront in terms of dollar volume. And as far as CPMs, the good guys should get higher CPMs, and we're the good guys.

To hear more from Peter Naylor on TV, digital video and the future of ads, come to the Ad Age Digital Conference on April 14 and 15 in New York.