Hulu CEO Says "Vast Majority" of Users Stick With Ad Option

Paley IC Summit with Irwin Gotlieb, Mike Hopkins and  Jack Myers- H 2015
Courtesy of Luis Marin Creative/The Paley Center for Media

Mike Hopkins explains that ad complaints were "too much of a negative," says the company's revenue is about 50:50 advertising and subscriptions and calls the company's dual revenue streams "a powerful advantage."

Hulu expects to grow its advertising and subscription revenue at roughly the same rate over the near-term despite having launched an ad-free option, CEO Mike Hopkins said Friday at the Paley International Council Summit in New York where he also explained the online video company's original content strategy.

Speaking in a session that was webcast, he said: "Adding the commercial-free offering was part of a larger strategy to change the conversation about Hulu with consumers." He explained: "When we looked at our brand metrics, our brand health, the advertising issue was really eating away at the foundation of the brand ... it was too much of a negative."

He added that Hulu, whose corporate owners are 21st Century Fox, Walt Disney and NBCUniversal, isn't in the ad business for the sake of advertising, but to help monetize content spending. "We felt that giving consumers choice between a limited commercials plan and a no-commercials plan is another way to monetize the content," he said. "Consumers were going to give us a little bit more money for their time or they'll save some money and give us their time to interrupt it for advertising. And this works ... Almost overnight, the complaints about advertising on the limited-commercials plan plummeted."

Added Hopkins: "The vast majority of customers are voting with the limited-ads thing, which is what we thought would happen. And we think that's really healthy and it's a really positive step." The ad-free service costs $11.99 per month, compared with $7.99 for the subscription plan including ads.

He said the company has been growing ad revenue "quite healthily." The Hulu CEO also said currently the firm's revenue comes about 50 percent from advertising and 50 percent from subscriptions. He said Hulu projects growth in the two revenue streams near-term "almost at the same rate," with sub growth likely to be a bit stronger.

Ad revenue will benefit from improved third-party measurement metrics.

Hopkins on Friday also called the dual revenue streams "a powerful advantage for us" compared with other SVOD services, allowing for higher average revenue per user and improved monetization that allows the company to amortize cost more effectively.

With Hulu in growth mode, he said the company can also spend money on original content to boost brand awareness and subscribers. "We’re growing, so we’re taking some shots on original programming to ring the bell, if you will, and get that attention, get subscribers," he explained. "Our math as we are growing is a lot different ... At this moment, we are trying to be very aggressive."

"The future of TV is Hulu today," Hopkins said Friday when asked about the future of advertising as he touted addressable advertising and its rise in importance. He said the company is enhancing ad targeting among other things.

Asked about his priorities since becoming CEO in 2013, Hopkins, a longtime Fox distribution executive, said the company has rebuilt its senior team and has been trying to "change the conversation" about the company. "It’s been about content and marketing" and hiring technology and product experts to help with the question of "how do we make this great content ... more available."

About 70 percent of Hulu's views are in the living room, meaning people are watching content on the best possible devices, such as connected TVs, he also shared.

Hopkins wasn't questioned about a recent report that Time Warner was looking at possibly taking a stake in the online video player.

Joining him in the discussion was Irwin Gotlieb, chairman of media buyer Group M. He said for his team it is not enough to know how people consume TV, but necessary to understand the entire consumer journey across media platforms. He said Group M is prototyping ad models that combine TV ads with synced second-screen messages.

Gotlieb also argued that in broadcast and cable TV, the industry has "over-commercialized," making a recent decision by some networks to reduce ad loads welcome news.