Picture this: You’re out to dinner with your in-laws and (reluctantly) missing the NBA playoffs. Suddenly, you get a notification on your phone: Your team just might pull off an upset. You’re asked if you’d like to “watch now” or “watch later.” After some internal debate, you wisely decide to tap LATER and, when dinner ends, start watching on the ride home. When you get to your living room, you flip on the TV and pick up where you left off.
This is the future of television as envisioned by Hulu. Until now, the 10-year-old video-streaming company has primarily been known as a place to catch up on network shows after they’re broadcast. But this spring, it’s launching a live-TV subscription: For less than $40 a month, viewers will be able to access both Hulu’s deep content library and real-time streams of more than 50 broadcast and cable networks, including CBS, ESPN, and FX. The service will also include DVR-like products that work on phones, tablets, and TVs. The goal is to deliver, for less than half the price of cable, the best of live television with the on-demand functionality of a streaming platform—along with features that neither offering has ever seen before.
Hulu, whose streaming service of TV, movies, and originals has 12 million U.S. subscribers (compared with Netflix’s 54 million), is charging into the most exciting—and daunting—new frontier in the multibillion-dollar entertainment business: the effort to save cable TV before it collapses under its own bloat. Twenty percent of U.S. households are now cable-free, and “skinny bundles”—as the industry unfortunately calls them—attempt to offer people who gave up on cable (“cord cutters”) or have avoided it altogether (“cord nevers”) an alternative. AT&T’s new DirecTV Now service, which launched last November, notched 200,000 subscribers in its first month alone, and critics have lauded Sony’s PlayStation Vue for letting users stream to more than one device at a time. But this nascent category is suffering from growing pains. Each service more or less offers the same broadcast and cable networks, making it difficult for consumers to distinguish them. Worse, Sling TV, the most established service with 1 million subscribers, and DirecTV Now have had trouble streaming content without embarrassing glitches. YouTube, the largest video service, is expected to launch its own bundle this year.
What’s happening here is emblematic of how the internet transforms industries. Cable TV, like newspapers, once operated as a series of local monopolies. But now every content provider—established or upstart—has to fight it out with everyone else, with no built-in advantages, geographic or otherwise. As this competition takes shape, the winners will be determined less by the channels they offer than the features they wrap them in. “If the content itself isn’t your differentiator,” says Hulu CEO Mike Hopkins, “then you have to look to other things to compete.” Hulu, then, is effectively back where it started 10 years ago: Its future, and that of its traditional entertainment partners, rests on reimagining the user experience and creating a bold new template for how we consume TV.
An elegant, easy-to-use interface has been a hallmark of Hulu’s since its 2008 launch, thanks to founding CEO Jason Kilar, who maintained a near-maniacal attention to design. He ensured that Hulu has been thinking about the technical nuances of television viewing for nearly a decade—unlike, say, AT&T. When Hopkins became Hulu CEO in 2013, the former 21st Century Fox executive was expected to be able to smooth out the tensions among Hulu’s corporate parents—Disney, 21st Century Fox, and Comcast (more recently, Time Warner became a minority owner)—that marked Kilar’s tenure. He also had to brush up on his tech skills. Though steeped in television distribution, Hopkins was such a digital novice that Peter Rice, chairman and CEO of Fox Networks Group, welcomed him to Hulu by sending him a Steve Jobs uniform (black mock turtleneck, New Balance sneakers, faded jeans) and a copy of The Internet for Dummies.
Today, Hopkins is a model student. For the past two years, he and his team have been obsessing over the new UI for Hulu’s network bundle, deconstructing everything from a screen’s “information density” (how many titles you see at one time) and background color gradation to how much time it takes new users to complete the onboarding process (three minutes). The result is an elegant, recommendation-filled interface that’s filled with poster art, one that’s worlds away from the experience of pulling up a clunky grid of channels and deciphering hard-to-read text. In fact, browsing channels and titles is presented as a last resort. Instead, the new UI steals innovations from Netflix and Spotify and applies them to live TV: Users get customizable profiles, and Hulu surfaces content for them in real time. Some of its selections are users’ own picks; the rest comes care of Hulu’s predictive algorithms. To help educate these algorithms, the service has deconstructed programming to remarkably granular levels. Users can express a preference for everything from “fantasy anime” to “romantic K-dramas.”
Hulu will also be introducing interactivity to the traditionally passive act of TV watching. Los Angeles residents, for example, will be able to receive mobile notifications about local, breaking news: a high-speed car chase, say, on the I-405, or a Dodgers game that’s spilling into extra innings. Other kinds of personalized alerts will roll out later this year. “There’s [more to] the social experience than just posting things to Twitter and Facebook,” says Ben Smith, Hulu’s senior VP of experience. He wants viewers to share with one another in a more profound way. Eventually you’ll even be able to see which shows and movies your friends are watching, or (perhaps more tellingly) which shows they’ve started and then ditched.
These features are essential to elevate and distinguish Hulu’s network offering. “It’s really hard to come up with a skinny bundle that works economically and is broadly appealing to everyone,” one digital TV executive explains. “While it’s true that the average user only watches 10 channels, those channels are different for everybody.” Hulu’s partners think they have another advantage that its competition doesn’t: Hulu’s library of more than 3,500 shows and movies to pad out its live offerings. And then there’s Hulu’s own original content, which it’s doubling down on in 2017, in hopes of landing its own Game of Thrones–like watercooler show (see “A Dramatic Entrance,” previous page). “This idea of marrying live TV with a deep library,” says Fox’s Rice, “so you can watch either the latest episode of Empire or the first one—that’s unique to Hulu.”
For every media executive like Rice, who claims to be “agnostic” when it comes to competition between streaming and cable, there are others who are more reluctant to adapt a business model that has generated billions in profits for more than three decades. The media companies want transmission fees that are equal to, if not higher than, what they receive from pay-TV companies. They are also trying to build their own streaming apps. In his grinding negotiations with CBS, for example, Hopkins wasn’t able to secure access to full, current seasons of some of the network’s most popular shows, including NCIS; CBS is reserving them for its digital All Access product that sells for $5.99 a month. And, as of January, Hopkins said he was talking to Comcast “almost on a daily basis” in an effort to make NBC part of the Hulu package at launch.
With such headwinds, Hulu and its partners find themselves in a different version of the “trading analog dollars for digital nickels” debate that defined its earliest years. “I don’t know how Hulu makes money at $40 [a month],” says media analyst Brandon Ross of the research and strategy firm BTIG. “If you sit and write down the names of the companies they’ve made deals with, and figure out what the content costs are, it gets me to $40 or over.” Hopkins offers a more sanguine view: “I think profitability in these spaces is going to be relative.” He points out that Hulu has effectively two businesses—streaming video on demand and live streaming—against which it can sell ads. “When you look at it holistically,” he says, “we’re going to be in pretty good shape.”
For now, Hopkins would rather focus on the long view: “We’re building this thing for 5 years, 10 years from now, because we just see this increasing opportunity for people to subscribe to a service like this.” First, though, it’ll have to captivate viewers. If it does, Hopkins says, “we’ve improved the experience of television”—and most likely changed it forever.