Earlier this month, Hulu’s CEO confirmed the company was developing a cable-like online TV package to expand its footprint to areas like sports, news, and live events.
Many of the details have yet to be nailed down, and estimates for the price of the service range from $30-$40. But some analysts are already seeing a game-changer, with Citi predicting it could shake up the sports TV landscape, and Credit Suisse raising its valuation of Hulu to $25 billion following the news.
But what are the keys to Hulu’s success with live TV?
Credit Suisse talked to two “former senior executives at Hulu,” both of whom had worked on early versions of the live product, “which has been in development for at least three years.” Here are the three key points, according to a Monday note:
- “Market research suggested that the most important content to include in a live streaming product is primarily sports and news.” Contrary to some previous analyst questioning of the value of ESPN, these executives “highlighted that ESPN was a ‘must-have’ to make this type of product a success,” analysts write.
- Hulu can’t abandon on-demand. “On top of the live networks, both executives felt it was important the product included a deep on-demand library and in-season catch-up service from all content partners.” The idea: Netflix plus live.
- Some networks would have to get the axe. “They felt that most of the content on Viacom, Discovery and Scripps was not valuable enough for a live product to make all the networks worth including in Hulu’s live streaming product.”
Credit Suisse estimates that Hulu could generate “healthy” EBIT margins of 26% (at $40 per subscriber per month).
Here are the analysts’ basic assumption for content costs: