Hulu Wants Local Broadcast Channels for Skinny TV Bundle (EXCLUSIVE)

Streaming-video service aiming for 2017 launch of bundle of live channels

Courtesy of hulu

Hulu is gearing up to spend a bundle on trying to expand its business into live television — and part of the Herculean task it has set out to accomplish involves cutting deals for local TV channels in markets across the U.S.

The company, which has been actively working on the project for about six months, is in talks with ABC, Fox and NBC — which are owned by Hulu’s parents — as well as CBS and cable networks about carrying their live networks in a relatively low-cost, over-the-top package.

“The marketplace is right for this now,” CEO Mike Hopkins said in an interview. “Across the board, there’s a desire among TV networks to connect with people who have fallen out of love with television.” He announced Hulu’s plans to launch a live-TV service in 2017 at Hulu’s upfront presentation Wednesday.

Hulu hasn’t clinched any programming deals for the live-TV service at this point, and the company has not confirmed reports that it’s targeting a price point of around $40 per month. Hopkins said Hulu has not settled on an official name for it yet.

But local TV channels will be key for the Hulu live TV service to have maximum appeal because they offer live sports and news, said Tim Connolly, the company’s senior VP and head of distribution and partnerships. Local TV “provides the best content experience, so that’s what we want,” he said. “You want to be able to watch the local game.”

It will be time-consuming, complicated and pricey for Hulu to reach deals covering even the majority of the U.S.’s 210 markets as designated by Nielsen, given that would require reaching agreements with numerous individual station group owners. Connolly pointed to ABC’s recently launched “Clearinghouse” program, designed to help affiliates move more quickly to offer live-streaming and authenticated viewing options via pay-TV and OTT providers, as an example of an initiative that will help grease the skids.

Local TV is something the two other U.S. over-the-top pay-TV services, Dish Network’s Sling TV and Sony’s PlayStation Vue, have wrestled with.

Sling launched without any content from major broadcasters, although it now offers local Fox channels in 17 markets and the option to stream eight ABC-owned stations. Meanwhile, Sony had rolled out PlayStation Vue only in seven markets where it had signed deals with local affiliates or network-owned stations, before this spring deciding to launch a nationwide “slim” bundle without local channels to get to market faster.

And there’s no guarantee Hulu will be able to secure rights to the TV networks it wants to package into an over-the-top bundle, even from its own parents.

On CBS’s earnings call Tuesday, CEO Leslie Moonves was asked about Hulu’s live TV plans. “As you know, we are not a partner in Hulu, nor do we want to be,” he said. “So if they offer us the right pricing for our subs, we will absolutely consider it.” Moonves added that “it’s going to be hard to offer a pure offering without having CBS as part of it.” CBS has its own subscription OTT service, All Access, and has been steadily adding local CBS affiliates since launching it in October 2014.

Hopkins acknowledged that launching live TV service will be a “reasonable investment.” As it’s negotiating rights deals, Hulu also is in the process of hiring personnel and building out infrastructure for the service; the company currently has about 1,200 employees.

The concept of Hulu launching a bundle of live TV channels has been around since before Hopkins was named CEO in the fall of 2013. According to Hopkins, one of the big reasons Hulu is moving forward is because Internet networks have enough capacity to support live-streaming video.

“The infrastructure is there now,” Hopkins said. “We’re going to roll this out as soon as possible.” Customers will have the option to buy Hulu’s live TV product as a standalone service, or bundled with the SVOD service, he said.

As for price, Hulu believes there’s plenty of opportunity for a live TV service that costs somewhere between the $8-$10 per month that SVOD services like Hulu and Neflix charge and the $85 monthly that traditional pay-TV plans typically run, Connolly said. Sling TV starts at $20 per month, while Sony’s national “slim” bundle starts at $30.

Price and delivering value to consumers will be key, said Hopkins, but he doesn’t anticipate a race to the bottom: “I don’t think getting into a pricing war is good for anyone.”

Hulu now has nearly 12 million subscribers, about 80% of which also have a cable or satellite TV service, Connolly said. Hulu’s new live TV service will be aimed at the remaining 20%, as well as others who don’t subscribe to traditional pay-TV packages.

“We don’t think we’ll be competitive with (pay-TV providers) — we are focusing on millennials and cord-cutters,” Connolly said. “Our point to them is that our SVOD service is still a very good complement to their TV services.”

Hulu is in the process of conducting ethnographic studies and user research to determine what the live-TV service should look like. “It’s about starting with the viewers,” said Ben Smith, senior VP and head of experience. “The question is, ‘What’s the greatest sports experience,’ not ‘We’ve got to have ESPN.'”

Whether Hulu’s live TV service will include DVR capabilities remains to be seen. It will be a “blending of on-demand and live models,” Smith said.