Mike Lang on the Hulu strategy

Mike Lang, who was instrumental in founding Hulu in a previous role with Fox, and is now with Discovery Networks International, talks to BroadcastPro ME about the strategy behind creating Hulu and what it will entail to create a similar setup in the MENA region.

Do you think the rationale for the creation of Hulu applies to the MENA region?

I was with Fox Entertainment when we helped to found Hulu with David Zaslav (now President & CEO, Discovery Communications) and JB Perrette (now President and CEO, Discovery Networks International), who was with NBCUniversal; the other people involved included Bruce Campbell and Peter Chernin. The core concept was media partners coming together to aggregate content in a digital-first approach.

When we started Hulu 10 years ago, the other alternative was YouTube. Today, the other alternatives are significantly more and include Netflix, Facebook and Amazon. While all of us have great content as individual media companies, there is strength in coming together and aggregating content.

More importantly, consumers in the digital space think along these lines. They don’t go to one channel and consume content – they want to go to one place to be able to access as much as possible. And so we believe that concept not only works in the MENA, but all across the world. It depends on whether you can get the right partners to work together, committed to building a business and committed to really competing to have a very strong offering. You may have heard that we have recently signed an OTT joint venture with ProSieben, a market leader in Germany. So clearly, we think there is an opportunity to do a Hulu-like joint venture in the MENA.

You had challenges when you expanded Hulu in international markets. Do you see the same challenges in this region?

We believe the MENA has more challenges in some ways and fewer in other ways.

There is more because, as I said earlier, there is much more significant competition. When we launched Hulu, people were amazed that they could get that much content in one place. Today, with Netflix, YouTube and Amazon, there is more opportunity out there, so you need a really strong product out of the gate. You cannot think that you can win with something less than that.

Secondly, in today’s world, differentiation is achieved when local content is combined with international content. It is a challenge to get local broadcasters and local content providers willing to contribute their content, but doing that will not only be healthier for international players but for local players as well.

When we launched Hulu, everything from the technology platform to what you could achieve was still fairly nascent. There was not, for instance, the ability to deliver live content through internet-connected platforms. The technology experience was less advanced. Today, following our deal with BAMTech Europe, a subsidiary of Major League Baseball’s digital business, we can now deliver live simulcast streaming through internet platforms. That is a big deal. That was not feasible 10 years ago.

Lastly, the ability to access entertainment channels through mobile devices is significant. When we started Hulu, smartphone penetration was less than 10%. The fact that you can go to your device and access online content was only an idea 10 years ago. Now it is the norm in many parts of the world. So there are a lot of factors that make it easier to launch a Hulu-type offering across many regions.

With some networks bigger than others, how do you allocate equity between partners? What is the business model?

It is a very complicated question, and it is probably why there have only been a few of these joint ventures.

You have to accept that you are going to allow equal partnership and equal governance between the partners. Because if there is no equality between the partners, it will never work. Everyone will always feel as if their agenda or their desires are being squashed by someone with a different agenda. So you have to find a way to have equal governance and equal participation. Whether that means everyone has the same equity is a different question. What that means is everyone who is seated at the table is a partner.

The way that we solve that in all of our deals is ensuring content gets paid based on how it is consumed. The more content each of the partners bring, and the better the content they bring, the more money they make. So the structure of the venture is around equal governance and equal partnership, but the economics is based on whose stuff works.

When we set up Hulu, I was at Fox. We were the number one network in the United States with American Idol, The Simpsons, Family Guy and so on. The first deal we did was with NBC, the next was with Disney. We were very confident that the Fox content would dwarf them and do incredibly well.

What we found out when we launched was it was all pretty equal. Sometimes content that people don’t believe will work in a digital world actually works a lot better. People are able to explore and search in a Google-like way, and the content that they would have never ever seen, that gets very low ratings in the linear world, suddenly becomes a big hit on digital.

So you almost have to take away the biases, take away the perceptions of what works bigger and better, and say we are all in this together. We all have a say, but in the end, good luck to whoever makes the most money. It gives us the incentive to create more content on our site that will do better.

This sounds a little idealistic, but in the end, this approach actually does work. It works on Hulu, it is working with our joint venture with ProSieben, and we are hopeful that it will work on other networks around the world.

So do broadcasters have to wear two hats – investor and content licensor? Do you negotiate separately?

Clearly, there has to be an arm’s length relationship between those two roles. There are two key levers in the success of these joint ventures. First and foremost is like-minded partners putting all their content in, and second is hiring a world-class digital product-centred management team that drives the business on their own.

You have to hire people that can build great digital technology products that can compete against Netflix, Amazon and Hulu. You have got to give the team the confidence that they will be given the resources and tools to be able to build that.

We were very fortunate when we did Hulu. We hired a worldclass executive who had come from Amazon – Jason Kilar. It was probably the most difficult hire in my career. He took on Hulu with the sole purpose of building a world-class digital product-centred business. He wasn’t worried ever about getting a job at Fox, NBC or Disney. He wasn’t worried about helping the individual broadcast brands. His sole focus was on the consumer and building a great product.

The individual networks have to let go and accept the fact that in order to compete against digital players, it is probably going to have to be someone from outside that you have to hire.

What was Jason’s role? Was he responsible for strategy?

First and foremost is the product’s digital experience. The irony of the digital world right now is that as media executives, we think of content on an exclusivity basis. Most of the content on

YouTube and Netflix, for the most part, is not exclusive. It is available everywhere. They provide a great product experience for you, and you feel comfortable to go back to what works.

You need an executive that can firstly help to build that product, and then identify and develop that unique exclusive content that goes on top of that. These two things are very critical.

In terms of marketing, we are big believers that you need to have both free and supportive tiers that enable consumers to come in without paying a subscription to be able to access some level of content. Then you need a paid tier that you funnel people into over time.

In Hulu, we did not launch the paid tier for three years. In ProSieben, while not on day one, we are looking to potentially offer both tiers to consumers. For a company like Spotify, they have used their free tier to drive consumers to the paid tier.

You need to have both – not just to draw advertising dollars, but subscription dollars, and also drive marketing. Clearly, you need to have an executive who is focused on content acquisition, marketing and lifetime value, all those things that traditional media companies may or may not have.

So I believe that the way to the next level is marketing the brand of the joint venture and not marketing the brands of the individual channels. In a way, OTT is a natural extension of what the paid television world is, only with more aggregated content

Would you agree that in a Hulu-type offering, you only see the content and you don’t see the brand supplying that content, whether it is Fox or any other studio?

There are definitely things you can do to identify the individual networks in the digital world.

You can put watermark bugs on the video itself that identify the network. As you click on it, you can have marketing around it.

So we hired this executive, put $100 million capital in Hulu through third parties, and put up all our content there. During one of the first meetings, the CEO said: “I have an idea. I want to create my own search bar on the site that if anyone searches any content in the world, we will send them to that site. So if we don’t have it, we will send them to where that is.”

Clearly we were surprised by his request. People in the room were thinking: we just built this business, and we now start sending people to other sites to access content? But that is the kind of product experience and product availability that you have to offer in order to compete and be relevant.

So retaining the identity of the broadcaster in a Hulu-type offering is irrelevant?

I think it is important. There are certain branded content providers that drive people to their sites on the strength and relevance of their brands.

In Germany, ProSieben is a major player and was very excited to partner up with us because of the Discovery brand and the content we offer. This differentiates not only the partnership, but also the service. The brand does matter.

Almost all major MENA broadcasters today have their own VOD and streaming platforms. Would you advocate that they shut down these platforms and enter into a more collaborative initiative such as MENA Hulu?

I don’t know if a pan-regional service would be successful. In Europe, it has been challenging to make that work. Local markets are different not just in content distribution, but also marketing.

So if a network such as Discovery initiated a collaboration, how would it work with three other local parties such as OSN, MBC and DMI?

Discovery would be the fourth partner then. We would bring our content, our expertise, and we might even bring our technology platforms. We might be a good third-party broker, although four partners right out of the gate seems a little complicated to me.

This is not a cheap initiative. We cannot put this together overnight. Also, an entity such as Discovery Channel that brings experience, technology capabilities and content, is very helpful to jump start these efforts.

We also discovered that in some regions, a channel such as Discovery becomes the objective third party in the room. All the local broadcasters have their own priorities. We are outside of that.

Would you then recommend two partners as an ideal number?

No, I think the more the merrier. The critical question is can you reach a consensus, a common ground for the strategy and vision for the business. If you can do that with two, three, four or five partners, it is great.

My experience shows that getting two to three out of the gate is easier, with more partners further down the road. I know a little bit about your market, so trying to get five to six people together in a room to agree to anything is challenging.

Finally, since launching Hulu the core linear business for the broadcasters has gone up and not down. It is not a zero-sum game.

We are offering up the market to people that have decided to spend all their time on mobile phones or TV-enabled devices. We are not trying to force people off our existing platforms. I think if you sit back and don’t do these things and you wait, it might be too late when you finally act.

But I do want to say we are very optimistic about the linear business in the MENA, and we do not see a Hulu-type offering as repudiation of that. If anything, it helps drive business for both.

Do you think a regional Hulu would be able to charge consumers, given the region is dominated by FTA channels?

We believe in a combination of both free ad-supported and paid offerings.  There isn’t a one-size-fits-all approach. It should be tailored according to market needs.