Hulu’s Peter Naylor On The Future Of Streaming Video

PeterNaylorAs more networks like HBO and WWE Network develop a la carte streaming services, competing streaming video or TV providers (and some e-commerce companies, for that matter) are pressed to develop good content that resonates with subscribers.

Hulu, which pulled in about $1 billion in revenue in 2013 and has over 6 million Hulu Plus members, airs current TV episodes and full series as well as a slate of its own content, called Originals. These shows include “The Awesomes,” an animated show from Seth Meyers; “Behind The Mask,” an Emmy-nominated show chronicling the lives of sports mascots; and “Deadbeat,” a comedy produced in part by Arrested Development director Troy Miller.

Because Hulu is also supported by ads, it demonstrates that – contrary to conventional wisdom – advertisers can capitalize on time-shifted content and binge watching, often thought to be the death knell for live TV viewing.

“Just because content is time-shifted, it doesn’t mean the ad needs to be time-shifted,” said Peter Naylor, Hulu’s SVP of ad sales and chairman of the Interactive Advertising Bureau’s (IAB) new digital video division. Services like Hulu simply need to develop advertising models that fit their environments – for instance, sequential messaging can be ideal for reaching out to binge-watchers.

Naylor spoke with AdExchanger about programmatic in connected TV, standards in digital video, and why cross-screen measurement remains a thorn in marketers’ sides.

AdExchanger: Where does the bulk of Hulu’s ad revenue come from?

PETER NAYLOR: Most of our revenue is the conventional 30s and 15s [pre-rolls] that we salt and pepper with digital mechanisms, like targeting with Nielsen or comScore or behavioral or geographic filters. When it comes to the content itself, we do sponsorships, branded integrations, co-presented executions.

Anything you see in a conventional show, we’re happy to do with our Originals. All of our Originals will be made with conventional breaks. Our conventional breaks are, of course, a lighter load than what you might experience on commercial television.

What role will Originals play in Hulu’s strategy? Amazon, Yahoo, and AOL are all investing heavily here.

[Beyond] broadcast, cable and 525-plus content providers, we have original programming. … We know we need to go even bigger with our Originals to help crystallize the Hulu brand, so in the last two months, we’ve announced three huge shows, [including] “11/22/63,” a series produced by J.J. Abrams that’s based on the Stephen King novel; a single, half-hour comedy called “Casual” that’s produced by Jason Reitman, who directed “Juno” and “Up In The Air”; as well as a new comedy called “Difficult People,” produced by Amy Poehler.

With more ad-supported streaming and paid subscription services entering the fray, how does it all get measured?

The first step is to measure total audience. We’ve been cooperating with Nielsen for as long as I can remember to determine total audience. Nielsen’s trying to measure desktop and mobile with mobile Online Campaign Ratings (OCR). With this whole world of new devices, measurement needs to be tackled. That first step is really a total audience measurement, and then they’ll go show-by-show. But they need to get the permission of the publisher to get things tagged properly if they want to do a real job. And there’s still a lot to be done there.

What do you think of what Nielsen’s doing to quantify Amazon and Netflix viewership?

Netflix has a lot of viewers, and I won’t speak for Netflix, but right now they care about creating content and driving subscriptions. They don’t have the same considerations as a commercial publisher, so each part of the ecosystem does what’s in their best interest. There was some confusion about how [Nielsen] would measure everything if they did not gain cooperation from someone like Netflix and the truth is, that [data] is the first step to measure total audience.

What do you use for measurement and what’s a top struggle?

The two biggies for us are Nielsen OCR and comScore validated Campaign Essentials (vCE). Just as there is a lot to learn about binge behavior, there’s a lot to be learned about things like co-viewing in the living room. You have one stream, but you don’t know how many people are watching when they’re slinging content through their Roku, for instance. We also have measurement challenges with shared subscriptions. If you have one subscriber in a household and you have four people living in a household, the viewership is potentially four times [higher] than the stream implies, so there are a lot of measurement puzzles that need to be solved.

What’s interesting is you have OCR now, which is desktop, and then you have mobile OCR. And once Nielsen adds more [for connected TV or CTV], you just expand the definition to devices or living room [rather than] breaking out desktop and mobile OCR.

Will CTV inventory be sold programmatically? Or is linear the first hoop we have to get through?

Real-time is real hard. With linear, they have a fixed commercial load, and in the online world, it’s dynamically served and every stream is different based on hardware, geography, and content. So doing real, exchange-based trading the way we think of it in online compared to TV is a long way away.

Sooner or later, you can imagine a world where linear is replaced with dynamic ad insertion, and that’s where there would be opportunity. I don’t think any ecosystem, either online or on-air, will ever be fully programmatic. There will always be things that have high demand and areas where there’s low demand, and automation may be a wonderful way to take advantage of that opportunity. The whole world is considering audience-based buying as opposed to content-based buying, so those two things combined will fuel the growth of programmatic, but there will still be a large percentage of content or programming bought based on the content, time, or the nature of the event itself.

In that vein, how is Hulu using data to identify something like “in-market auto-buyers”?

We have a robust pool of first-party data because of our subscriptions, and we use that data to help us with our conventional rating-point targeting, which is conventional gender and age-based targeting.

Our three areas of focus for programmatic are automation of workflow, data-informed targeting, and examining opportunities in exchanges. We will not put Hulu inventory in open exchanges, but we are considering private exchanges. We will be protective of our environment and the ads that appear in our environment, and we want to be really careful not to open up the ecosystem in a way that might potentially expose us to any risk.

How do new streaming services such as PlayStation VUE affect you from a distribution standpoint?

Chances are better than good that we will be a part of it. With [Amazon] FireTV, we were one of the default choices, so we work really hard to make sure we’re part of all those announcements. We have our own proprietary technology that allows us to be really nimble, so we can plug into all those devices and we have our own ad server, so it enables us to successfully serve ads into all those environments.

Did you build the ad server yourself?

That’s all homegrown, and it’s really because of our spec requirements. The IAB has video standards and we’ve gone beyond their recommended standard for quality size of file. Our files are huge because we serve so many streams into a living-room environment on an HD stream.

Our standards are just higher than the standard video ad’s because of the environment, so we went with our own ad server since our situation is unique, so because of it we needed to build our own solution. There are some things [where] you look to the industry and some – you look to your own business. We [the IAB Digital Video Center of Excellence] want to hear from all the parties out there to reduce friction and help move the industry forward.

Viewability seems to be a big friction point. Some advertisers now demand 100% viewability, despite MRC guidelines (50% in-view for two consecutive seconds). 

Every part of the ecosystem is entitled to transact the way they want to transact. The role of the IAB is to come up with the most common denominator and common guidelines, and if people want to go above and beyond that, they can. There used to be hundreds, if not thousands, of banner sizes, and the IAB looked to create the universal ad package that made it really easy to buy and sell display. The same kinds of things probably can and should happen in video around standards and things like VAST and VPAID, but even those need to be reexamined. They were created for an ecosystem, which didn’t really [incorporate] how new devices worked in a connected living room.

We at Hulu have for more than two years guaranteed that our impressions will only count when they’re fully completed, so it’s a different form of measurement than the standard, but it’s our standard.

What’s the reaction from advertisers and consumers on these guarantees?

We only charge the advertiser for full completions and users can’t skip the ads, so the value proposition for the advertiser is through the roof in terms of the ability to be seen and stand out because that’s what everybody fights for – the ability to stand out. It’s generally well received [for viewers] because we strive to have a very consistent ad experience. Our rule is that we will never serve the same creative more than two times per stream. We want to try to fight ad fatigue and consistency is really important. We have the ability to run many ads per pod, but restraint is the key to consumer acceptance, so we have a lighter commercial load than TV and that’s been a formula that’s worked for us.


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