Hulu’s Creating a Phoenix From Someone Else’s Ashes

 

Hulu already has an interesting position in the market, often airing shows the day after they appear on broadcast television. For consumers who are no longer tethered to broadcast schedules because of time-shifting (DVRs, etc.) or other means, Hulu has become a big piece of the cord-cutting puzzle.

While the television industry is known for its impatience with new program franchises taking time to build audiences, there’s relatively little risk for Hulu to leverage the smaller audiences of shows cancelled mid-season considering its non-linear streaming model. Over the past month or so as the list of fall lineup casualties has become clear, Hulu acquired the rights to the remaining unaired episodes of at least two shows:

  • “Selfie:” Average of 1.5 18-49 rating
  • “Manhattan Love Story:” Average of 0.7 18-49 rating

While the ratings weren’t strong enough to save them from the itchy trigger fingers at ABC, that’s a combined total of 7.3M viewers in a highly desirable demographic, which can be quite a windfall for Hulu. Even a dirty top-down conversion of 1% would mean 73,000 new customers, which is $584,000 in monthly recurring revenue or $7M annually. And Hulu plans to release episodes weekly, effectively “setting the hook” to go beyond their 30-day trials for new users.

Although this is a good way to capitalize on what were once considered valueless assets, short-term customer acquisition is probably not Hulu’s endgame. With Netflix and Amazon in the original content game, and broadcast / cable networks starting to announce plans to deliver content over-the-top in 2015, the writing is on the wall, and Hulu is laying a very strategic foundation for the future.

They just got two programming franchises with built in awareness and interest (admittedly too small for broadcast), without incurring production expenses, that they get to test with their total customer base. If one or both franchises perform well enough, Hulu can be in the original programming business without having taken on the expense or risk of R&D using a variation of Netflix’s “Arrested Development” model.

As an added bonus, Hulu likely has the program acquisition fees categorized as a marketing expense since they are officially about customer conversion. Since Hulu can track individual streams by customer account, even if neither program goes back into development, this is still a very measurable marketing program with the high probability of having a positive ROI. That’s a pretty compelling worst case scenario.