Steve Burke on NBCUniversal Streaming Service, Fate of Hulu Stake

Steve Burke tackled two important goals with Monday’s announcement of NBCUniversal’s plan to launch an advertising-supported streaming service in 2020.

The CEO of NBCUniversal knew the company needed a strategy to compete in the OTT arena, and he knew the time had come to winnow his direct reports. The unveiling of the streaming service coincided with a restructuring of NBCU’s top executive ranks that reduces Burke’s direct reports from 20 to 12.

Longtime cable chief Bonnie Hammer becomes chairman of direct-to-consumer and digital enterprises. Two of Burke’s rising stars — Mark Lazarus and Jeff Shell — each gain more responsibility, with Lazarus overseeing East Coast-based TV operations, including Hammer’s former cable portfolio, and Shell adding the NBC Entertainment group.

The changes will allow Burke to spend more time focusing on the streaming launch and on NBCU parent company Comcast’s acquisition of Sky, the European satellite broadcaster.

“I want to immerse myself heavily in OTT and Sky,” Burke told Variety. “I can’t really add responsibilities in a growing company and not restructure. It’s time.”

When he began his tenure at NBCU in January 2011, after Comcast bought a controlling stake in the Peacock from General Electric, Burke purposefully set up a very “flat organization” in order for him to be closely involved in operations.

“We needed to do it that way because I wanted to get the very best people for the jobs we had and we needed to change the culture of the company,” he said.

Today, the bench strength is deep, not only with Lazarus and Shell, but also with longtime executives such as Universal’s Donna Langley, who becomes solo chairman of Universal Filmed Entertainment after sharing the co-chairman title with Shell.

Burke noted that the leaner hierarchy for content-related operations will make it easier for the trio of Lazarus, Shell, and Hammer to make decisions on how NBC will handle what are sure to be difficult calls on whether to sell its programming to outside buyers. Burke said he expects to make decisions on whether to sell to Netflix, Amazon, and other streaming competitors on a case-by-case basis.

“The four of us can sit down and make those decisions instead of 25 of us,” Burke said.

Among the many questions raised by NBCU’s OTT plans is the fate of Comcast’s 30% interest in Hulu. NBCU’s service in many ways will duplicate Hulu’s offering. Hulu’s ownership picture is already changing with Disney’s pending acquisition of 21st Century Fox — a mammoth deal driven by Disney’s desire to build a global streaming platform to compete with Netflix. Disney is expected to try to buy out Comcast’s Hulu stake, but Burke indicated that Comcast was in no rush to sell.

“Fifty years from now will we be in Hulu? No, I don’t think we will. But I don’t think we’ll sell in five minutes,” Burke said. “Disney would like to buy us out. I don’t think anything’s going to happen in the near term. (NBCU’s service) will be one of many and it’s going to be as competitive with Netflix and Amazon and Hulu as anyone else.”

As for NBCU programming on Hulu, Burke said those licensing decisions would be carefully evaluated as they arise. In some cases, NBCU has exclusive streaming pacts with Hulu for shows with Hulu, while some are non-exclusive. NBCU-produced programming accounts for about 17% of the total viewership on Hulu, per Burke.

NBCU plans to make the vast majority of its film and TV vault available on its service. Over time, NBCU will begin to restrict the availability of clips and full episodes of “Saturday Night Live,” “The Tonight Show Starring Jimmy Fallon,” and other time-sensitive programs to drive immediate viewership to its proprietary platforms.

Hammer will build out a team that will oversee programming for the service, including the creation of original series. Burke declined to describe the size of NBCU’s planned investment in originals. He acknowledged that having some volume of originals was important to drawing a crowd. Because the monetization will be rooted in interactive and targeted advertising, what NBCU needs most is foot traffic.

“What we really want to do is get scale fast,” Burke said. “We want to build a platform that has lots and lots of people using it so we can start to make money with advertising.”

NBCU aims to have its still-unnamed service up and running before the 2020 Summer Olympics in Tokyo. The viewership spike that accompanies the Olympics telecast will be a prime showcase for the platform.

“We’re going to unite the whole company behind it,” Burke said.

NBCUniversal has been in planning mode for the streaming service for about three months. Burke got the go-head for his vision from Comcast’s board about two months ago.

NBCU’s decision to focus on an ad-supported service that still requires MVPD authentication is a detour from the approach taken by Disney and WarnerMedia as they prepare for the launch of streaming ventures later this year. Burke sees NBCU’s approach as a much faster way of gaining traction than trying to beat Netflix at its own subscription game.

NBCU’s analysis found that most subscribers to high-end streaming platforms also pay for some kind of MVPD service, meaning that the need for authentication would not be as big of a barrier to attracting new users to a service that is otherwise free. Nor does he think the presence of advertising will be a turn-off to the vast majority of target users.

“We did research and found that if you say to people, ‘Will you take three to five minutes of ads or would you pay $10 a month,’ the majority of people would say they’ll take the ads,” Burke said.

NBCU projects it can make about $5 per user per month if it has a light commercial load of three to five minutes per hour. Users will also be given the option of paying more for a commercial-free version. The service aims to build off the platform established in the U.K. by Sky through its Now TV streaming platform. Now TV leader Gidon Katz and others from the Sky team will work closely with Hammer and others in launching the service, Burke said.

The service will launch initially in the U.S. and expand soon after in countries where Sky offers service, notably the U.K., Germany, Austria, and Italy. The goal is to make the service international over time.

Burke thinks the differential of being free, for those who also pay for MVPD service, and the exclusive content that NBCU controls, such as “Saturday Night Live,” will allow NBCU’s offering to stand out. He believes the concern that viewers will no longer accept commercials as the price of access to programming is overblown. After all, broadcast TV thrived for decades before cable introduced the concept of ad-free TV.

“If we can create the modern equivalent of broadcast television online — how profitable would that be,” Burke said. “That seems a more achievable goal than taking on Netflix, Amazon, Apple, and everyone else charging $10 a month.”

Burke also acknowledged that the appointments of Lazarus and Shell would stir speculation about the one of them being in a position to eventually succeed him as the big boss of NBCUniversal. He definitely has been thinking about succession planning, but still as a long-term proposition.

“I’m 60. It would be crazy for me to not start grooming people,” he said. “On the other hand, I’m not going anywhere.”