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Hulu CEO: Most Linear Cable TV Networks Will Be Gone in a Decade

The traditional pay-TV universe of 300-plus channels is going to shrink dramatically over the next 10 years, Hulu CEO Randy Freer predicted — with maybe a dozen cable TV networks still standing.

“In the next decade, it’s not going to be about scheduled [linear] networks,” said Freer, speaking at the BI Ignition conference Tuesday in New York City. The survivors will be cable networks “that have been able to build a brand” that resonates with consumers, but most of the TV nets that are around today probably won’t exist, he said.

That may sound like an odd prediction from the CEO of a company that offers a live streaming TV package with more than 55 channels, and recently added several linear nets from Discovery.

But Freer believes the pay-TV lineup is due for a radical makeover. With the exception of live news and sports, everything else in the TV bundle will be distributed on-demand, said Freer. The company is currently evaluating the rollout of skinnier bundles that strip out linear feeds of entertainment channels to cut prices.

“We need to figure out different packages,” he said. “What you’ll see is a transition from what we call ‘live TV’ today.”

That said, Freer touted Hulu’s momentum in signing up customers for the live-streaming TV service. “We think the live TV market is robust,” he said.

Hulu this past May announced that it had topped 20 million total subscribers (up from 17 million at the end of 2017), and “we’ll add more [subscribers] in the second half than we did in the first half” of 2018, Freer said. Two weeks ago, Hulu launched a limited-time Black Friday deal offering the ad-supported SVOD tier for 99 cents per month for one year — a deal that was “far more successful than we anticipated,” Freer said.

Freer — who spent two decades at Fox before being appointed Hulu’s CEO last year — expressed frustration in being hamstrung by contractual restrictions in the pay-TV business.

“It’s crazy that we are still held hostage by the pay-television industry and the MFN world,” said Freer. That’s a reference to “most favored nation” clauses in TV carriage pacts, under which networks are required to extend the same terms and conditions they offer to other pay-TV distributors. “Everything is tied back to Comcast somehow,” Freer said. “We can’t innovate. Every time you negotiate with one network, you’re negotiating with the entire industry.”

Hulu is battling for market share with other over-the-top and internet pay-TV services. “Netflix has probably solidified their place for now,” Freer conceded, adding that “everybody else is going to fight it out.”

For Hulu, there’s urgency to sign up subscribers in the next 12-24 months, as even more streaming-subscription services start coming the market. “We need to get to 30, 40, 50 million homes to get the scale in the business,” Freer said.

Hulu With Live TV topped 1 million subscribers in September, according to the company, after launching in the spring of 2017. Freer said Hulu has been able to improve margins by 50% over the past year, while maintaining the $40 monthly price. “We all have to ultimately run a business that can be profitable,” he said.

Today, Hulu isn’t profitable. The streaming provider lost as much as $440 million during the third quarter of 2018, more than double a loss of $207 million a year earlier and losses of $357 million in Q2, according to regulatory filings by Comcast and 21st Century Fox.

Freer didn’t discuss what changes may be coming to Hulu with the looming change in ownership. Disney is set to take 60% ownership of Hulu next year, through its acquisition of 21st Century Fox’s assets including its 30% stake in the joint venture. Comcast is the other 30% owner; AT&T’s WarnerMedia owns the remaining 10% but is considering selling that stake.

Disney CEO Bob Iger has told investors that Disney would look to expand Hulu internationally. Freer said Hulu is currently evaluating which markets make sense to launch into but didn’t identify any.

“We have support from ownership to drive that opportunity. Whatever country we go into, we have to have a reason for being there,” Freer said. “We’re a little late in some markets… It’s a hard problem to come into [but] we are excited about some countries.”

Freer also outlined a vision for giving Hulu customers more choice in how they purchase content. For example, a user on the ad-supported tier would be able to purchase access to “The Handmaid’s Tale” season 3 without ads. Or, in another hypothetical, Hulu customers (even if they don’t have the live TV service) would be able to make a pay-per-view buy to watch a basketball game on a Saturday.

While Hulu’s big breakout original show is “Handmaid’s Tale,” Freer said his personal favorite on the service is “Castle Rock,” the anthology horror series from Stephen King and J.J. Abrams.

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