- Briefly summarizethe companyandits businesses.
- Define clearly and conciselythe strategic challenges facing the industry and firm today(you will need toupdate the case information with outside researchin this section - the case might be a few years old, but we are interested in the current situation - please reference your sources).
- Identify at leastthree strategic growth opportunitiesfor the company using a full sentence or a short paragraph. For each opportunity,list the pros and cons using bullet points.This should be the major part of your write-up.Materials such as tables, quantitative analysis, may be placed in appendices, not in the text. Do not repeat tables and material contained in the case. Again, use the current situation facing the company based on outside research to answer this section.
- Give a brief recommendation, selectingoneof your suggested growth opportunities. Give a rationale for your choice and provide suggestions for how the company can achieve this growth opportunity.
Hulu: Redefining the Way People Experience TV On May 3, 2017, Hulu CEO Mike Hopkins announced a new service designed to significantly shift the company's position in the fast-changing television landscape. Hulu had been launched ten years earlier as a joint venture by entertainment giants News Corp., later renamed 21st Century Fox (FOX), a and NBCUniversal to distribute their television programming over the Internet. Over time, the joint venture had attracted additional partners and expanded its ad-supported business model to include revenue from customer subscription fees. Now, Hopkins explained to a group of advertising executives and reporters gathered in New York's 5,500-seat Madison Square Garden, Hulu intended to "redefine the way people experience TV."1 During his one-hour presentation that also featured stars of Hulu original programming Elisabeth Moss (The Handmaid's Tale) and Jeff Daniels (The Looming Tower), Hopkins announced the launch of Hulu Live TV, a service that would offer live streams of the country's "Big Four" broadcast networks - ABC, NBC, CBS, and FOX- as well as a package of some of cable television's most popular networks including ESPN, CNN, Bravo, and HGTV.2 The $39.99 per month service included Hulu's full-suite of on-demand programming, plus a digital video recorder (DVR) capable of storing 50 hours of programming. "By bringing together thousands of live, on-demand and library shows and movies- and serving them up in a uniquely personalized way - Hulu can now be a viewer's primary source of television," Hopkins declared.3 The launch of Hulu Live TV occurred in the midst of major transformations taking place in all areas of the television industry including advertising, distribution, and production. The Internet had revolutionized every aspect of the business and allowed customers to view television shows, sports, and full-length movies on their laptops, connected televisions, or mobile devices. Increasingly, cable customers were "cord-cutting" and cancelling their TV subscriptions in favor of Internet-delivered programming. By offering a package of live broadcast TV and cable networks, Hulu was creating a potential major new rival to the well-funded and established distribution players in the space-cable, satellite, and telephone companies, also known as Multichannel Video Programming Distributors (MVPDs). a In 2013, News Corp. spun off its newspaper and publishing assets. The remaining entertainment and television businesses changed its name to 21st Century Fox. (Source: Rachel Abrams, "News Corp. to Rename Entertainment Side 21st Century Fox," Variety, April 13, 2016, http://variety.com/2013/moreewsews-corp-to-rename-entertainment-assets-1200375601/, accessed September 2017.) Senior Lecturer Henry W. McGee and Case Researcher Christine Snively (Case Research & Writing Group) prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.At the Madison Square Garden event, Hopkins also announced an expanded effort into one of the industry's most competitive areas - production of scripted television programming. The company had made modest forays in the past, but Hopkins declared that Hulu's critically-acclaimed series The Handmaid's Tale was the harbinger of a significant new investment area for the company Hulu faced fierce competition on all fronts. The company was just one of a number of players leveraging digital technology to launch "virtual" MVPDs, or vMVPDs. By 2017 several companies outside the traditional distribution system, including Google and Sony, had launched vMVPDs. Incumbents AT&T and Dish had also entered the vMVPD space to capture the growing demand for programming streamed over the Internet. In the programming arena, Internet-based companies Amazon and Netflix were engaging in a fierce battle with established pay TV companies like HBO and the broadcast networks. The rivals were each investing billions each year to produce original content and lure viewers to their platforms. "[A]t this point, 'arms race might be an understatement," observed Hulu programming executive Craig Erwich. 5 Immediately after Hopkins announced the rollout of Hulu Live TV and the company's ramped up programming investments, questions arose across the industry. Could Hulu's new offering compete with established MVPDs? Some analysts questioned the low $39.99 price point. Was it sustainable? Could Hulu offer original programming that was engaging enough to attract and retain subscribers? And while Hulu had powerful parents, were their interests all aligned with these new initiatives? MVPDs and the Evolution of Television Programming Distribution MVPDs played a central role in the rapidly-evolving U.S. television industry, which generated $120 billion in revenue in 2016.6 MVPDs traced their origins back to 1948 when community antennas were placed high above towns in rural areas to enhance reception of local TV signals. The programming was then retransmitted to customers via cable. The new cable TV operators, in addition to simply retransmitting local stations, began offering a range of programming choices. Local affiliates of "The Big Three" broadcast networks which had long dominated the airwaves - ABC, CBS, and NBC-saw the imported signals as competition and successfully lobbied the U.S. government for restrictions on the practice, effectively limiting the growth of cable TV." In the 1970s, regulations on importation of distant signals were relaxed. In 1975, Time Inc. used newly-developed satellite technology to distribute its fledgling pay-TV network, Home Box Office (HBO), to cable systems across the country. Within months, entrepreneur Ted Turner used satellite technology to distribute his local Atlanta TV station WTBS nationally, creating the country's first 'superstation." The new satellite distribution technology and further deregulation ignited explosive growth in the industry. By the end of the 1990s the number of national cable networks had grown to 171, with 65 million U.S. households subscribed to cable." In the 1990s, improvements in technology also allowed consumers to obtain the new channels without using cable via direct broadcast satellite (DBS).10 In 1991, Primestar launched the first satellite TV service in the U.S., followed by DirecTV in 1994 and Dish Network in 1996. Further competition to cable distributors came in 2005, when telecommunications (telecoms) providers began offering video service in geographies already served by incumbent MVPDs. That year Verizon launched its Fios TV service, and in 2006 AT&T launched its U-Verse offering. Telecoms offered bundled packages of Internet, TV, and phone service to consumers. By 2016, some parts of the U.S. had access to up to five With the launch of primetime programming on FOX in 1987, "The Big Three" became known as "The Big Four."MVPDs (i.e., two cable MVPDs, two DBS MVPDs, and a telecom MVPD) competing with one another to deliver video programming. 11 Increased competition spurred a huge wave of investment by cable MVPDs in order to build higher capacity hybrid networks of fiber optic and coaxial cable, These "broadband\" networks allowed cable companies to deliver high-speed Internet access, The growing investment required and the benefits of scale also led to tremendous industry consolidation. By 2017, the top four MVPDs accounted for over 72 million of the industry' 5 98.7 million customers.12 (See Exhibit 1.) Sources of Revenue MVPDs generated their revenue from customer subscription fees, ad sales, Internet service, and equipment rental, which including the set top boxes that enabled cable channels to be viewed and stored via a Digital Video Recorder (DV'R). MVPDs sold bundled packages of television channels to customers for a monthly subscription fee. Basic packages contained around 10 channels, standard packages included over 100 channels, and deluxe packages could exceed 250 channels. Premium channels such as HBO and Showtime typically cost an additional fee and could be added on to an existing bundle. By 2015, the average cable household in the U.S. received 189 television channels, up from 129 in 2008.13 As the number of available channels grew, many cable subscribers paid for television they did not watch. As one observer noted, \"When you sell things in bundles you can charge for a whole bunch of things nobody really wantscustomers will pay for the entire bundle in order to get the one or two things they actually want.\"14 Programmers argued that bundling helped keep many niche charmels on the air that would otherwise struggle if viewers had the option to subscribe to channels 'a la carte.'15 In addition to subscription fees, cable operators collected revenue from ads aired during time that was allocated to them from their program suppliers.16 (See Exhibit 2 for ad revenue by operator.) Ad pricing was based on both audience size and demographics (advertisers paid a premium to reach adults between the ages of 18 and 49 due to their superior spending power). However, TV advertising which could not be precisely targeted, was facing growing competition from the Internet and its ability to deliver specic audiences. Often sold as part of a bundle of products including TV programming and telephone service, a fast- growing source of revenue for cable companies was the provision of Internet service via their high- capacity fiber optic cables. For Comcast, the Largest cable MVPD, Internet service accounted for $13.5 billion of the company's $503 in revenue. (Refer to Exhibit 2b for Comcast revenue by source.) Cast Pressure Programming expenses were among the largest costs incurred by MV'PDs. Due to contractual agreements between the Big Four networks and their affiliates, MVPDs had to obtain network programming from the local station owners. These \"retransmission fees\" had become an integral part of broadcasters' revenue and they regularly pushed for higher prices. MVPDs also paid fees to carry the growing array of non-broadcast networks, including powerful services such as ESPN, which commanded a fee of $7.21 per subscriber per month17 Sometimes contentious negotiations between MVPDs and their program suppliers resulted in temporary network \"blackouts\" for consumers. MVPDs passed on the growing cost of programming rights to subscribers, driving significant increases in subscription prices. By 2016, a bundled package containing cable TV, Internet, and landline phone service cost an average of $187 per month. 13 The Cord-Cutters In response to the price increases, a growing number of consumers decided to cancel their cable subscriptions but retain Internet service. In Q1 2017, cable and satellite providers lost 762,000 subsa'ibers five times as many as in Q1 of 2016.19 (See Exhibit 3 for pay and non-pay TV households.) Some analysts expected the number of cable subscribers to drop 6% by 2020.20 By retaining their Internet service, these \"cord-cutters" still maintained access to an exploding array of new Internet distributed programming services. Connection speeds had improved dramatically over the years, and high-speed Internet allowed viewers to easily stream television shows and movies.21 The new programming services were referred to as "over-the-top\" (OTT) because they bypassed the traditional cable bundles and were streamed directly to consumers on an a la carte basis,22 Since the cost of multiple a la carte services could soon add up, there was a debate over the amount of savings cord-cutters achieved, but one analyst calculated that the average reduction could be $104 per month.23 In 2016, about 15% to 20% of all TV households never subscribed to pay TV. 2' These \"cord-nevers\" tended to be younger and grew up with cell phones and other multimedia devices. About 25% of millennials (those born between 1980 and 2000) consumed television only through (OTl') streaming devices, exceeding the national average of 15%.25 A Comcast representative explained, \"[A] lot of people [think] that millennials don't watch TV. It's actually wrong. Millennials watch a lot of TV. They just want to access it differently, and they want to have it in an economic model that is more affordable for them."26 One industry observer further noted that O'I'l' services "provide more flexibility on cost due to the month-tomonth arrangement, have lower switching costs between similar services, and avoid much-hated 'hidden fees' like set-top box rental and [regional sports networks]?27 User adoption of online streaming platforms was accelerated by sales of digital media players and Smart TVs (i,e., Internet-ready TVs), which made it easier for consumers to access programming without cablel Set top boxes like Apple TV and Roku and other devices enabled streaming programs directly to televisions By 2015, half of all US. homes had a television that connected to the Internet via a set-top box or with built-in Internet streaming functionality, a 26% increase from 2013.23 Traditional MVPDs attempted to address the issue of \"cord-cutters\" and \"cord-nevers\" in a number of ways. In 2010, Time Warner urged the industry to adopt a service called \"TV Everywhere\" which would permit cable and satellite subscribers to watch their bundle of services on a variety of mobile devices. However, the concept developed limited traction because consumers had to go through the cumbersome process of registering each individual service to gain access. Cable companies also began to experiment with "skinny bundles,\" which offered a limited number of services at a lower price, but remained reluctant to offer channels a la carte.29 One expert noted, "The bundle is the Gibraltar of the media business. It keeps the entire ecosystem alive, which is why it is so heavily and successfully defended. But there are hairline fractures beginning to appear [. . .].\"30 Original ProgrammingThe Golden Age of TV In the late 19905 through the 20105, a powerful driver of growth for MVPDs was the explosion of original programming \"once confined to the Large networks and a few premium channels,\" one observer noted}11 This period was often described as the "Golden Age of Television,\" because of the wide range of new high-quality shows commissioned by the cable networks The networks viewed original programming as essential to attract viewers and inc-ease negotiating leverage with MVI'Ds for higher rates and better placement in bundles, The successful investment in original cable programming effectively ended the large broadcast networks' domination of the television industry In 2015, for example, not one program from the big fourCBS, NBC, ABC and FOXearned an Emmy nomination for best drama series, one of the industry's highest honors The top prize that year went to the HBO series Game of Thrones, which soon surpassed The Sopranos in popularity, a key contributor to the network's success, During its six-year run, The Sopranoswon 21 Emmy awards, drove up subscriptions, and generated millions in DVD sales By 2002, largely due to the success of The Sopranos, HBO was more protable than the broadcasters.\" American Movie Classics (AMC) successfully used original programming to rebrand itself from a network that primarily showed classic films into AMC, a ratings and awards powerhouse featuring critically-acclaimed original series such as Mad Men and Breaking Bad. Driven by the success of its original programming, the network doubled its revenues and profits between 2012 and 2016' (See Exhibit 4 for the networks financials.) \"Producing highquality original programs has become vital for the long-term survival of any cable channel. . .\" one observer noted.33 Over-The-Top Content and the Era of Peak TV Online-only subscription-based streaming services contributed to the \"Golden Age of Television." For major broadcast networks and cable channels, the O'I'l' platforms provided an important new source of licensing revenue that not only boosted profits but could also be reinvested in new programming. Contracts varied. Some shows were made available in their entirety, some rights holders released a few seasons of a show at a time, and some shows were only available for a set period of time. To help fuel their growth, on companies followed the lead of cable networks and invested heavily in exclusive, original content Though costly to produce, an original series could attract new OI'I' subscribers, convince current subscribers to renew their subscriptions, and reduce the pressure to engage in increasingly expensive licensing contracts with third-party content providers.\" In 2016, the number of scripted original programs offered by O'IT services more than doubled from the previous year to 92.35 The major push into original programming by 0T1\" companies was initiated by Netflix, a subscription video-on demand (SVOD) service that was by far the most powerful of the new O'I'l' programmers. Founded in 1997 as a mail-order DVD rental service, in 2007 the company expanded to offer online streaming of movies and television shows.\" By 2017, Netix had more than 50 million subscribers in the US,\" far more than its major cable rival HBO. A key factor in Netix's expansion was its investment in high-quality original programming Although considered an enormous risk at the time, in 2013 Netix paid $100 million to produce two- 13 episode seasons of House of Cards, a political drama starring two-time Oscar winner Kevin Spacey. The gamble paid off as the series earned critical acclaim and generated new subscribers for Netix. Spurred by the success of House ofCards, the company rapidly ramped up productions, and CEO Reed Hastings announced plans to produce five new original series per year," Other OI'l' services soon followed Netix's lead. Amazon Instant Video, which allowed streaming access to over 5,000 movies and TV shows, began developing its own premium (Emmy-nominated) content, YouTube, by far the largest streaming service with over 176 million users in the US, added original scripted series' to its YouTube Red subscription channel. (See Exhibit 5 for O'IT service users by provider, Exhibit 6 for 011' categories, and Exhibit 7 for O'IT subscriber growth.) 313m: Hulu: Redefining the Way People Experience rv Riding the success of its original programming strategy, by 2017 Netflix had increased its programming budget to $6 billion, far outstripping its broadcast, cable, and OIT competitors.\" Amazon, for example, had allocated $4.5 billion to original programming and NBC spent $4.3 billion, while CBS invested $4 billion in original programming.40 HBO devoted half of its $2 billion content budget on original content.'1 New entrants in the space signaled their seriousness by the size of their programming commitments. In June 2017, the social network Facebook, with over 3 billion users worldwide,42 announced that would spend $1 billion to add original content to its platform. (See Exhibit 8 for digital players producing original content.) Tracking the exploding number of programs generated by the competition between O'I'T, cable, and broadcast companies, John Landgraf, CEO of cable network FX, dubbed the new landscape "Peak TV." He reported that a record 545 scripted original series had aired in 2016 (up from 420 in 2015)'13 The new O'I'l' programming proved popular with audiences and critics alike In the 2016 Emmy nominations, Netix muscled into third place behind HBO and FX.\" Hulu In 2006, concerned about the growing number of movies and TV shows posted illegally on the web, some Hollywood executives began to consider launching a site that would allow them to directly monetize their programming\"5 On March 22, 2007, NBCUniversal and News Corp announced plans to launch a new streaming service that NBCUniversal President and CEO Jeff Zucker described as a \" game changer for lntemet video.\"46 The announcement was met with skepticism; executives at Google referred to the unnamed venture as \"Clown Co"47 as only two networks initially signed on, and neither group had much experience with the Internet.\" In March 2008, the new network, Hulu,c officially launched, providing users with access to select clips, full movies, and episodes of popular FOX and NBC television shows. Users were shown ads during programmingtwo minutes of commercials for every 22 minutes of programming one quarter of the commercials typically aired during a program\" Hulu let users select the sort of commercials they watched, rate them, and sometimes participate in interactive puzzles or games during commercial breaks59 Hulu split ad revenue among its content providers. The site quickly became popular with users. Ten months after the site's official launch, [-1qu was named \"Website of the Year" by the Associated Press and had 227 million viewed videos51 Hulu continuously added new content to its library as the site grew in popularity'52 In addition to FOX and NBC content, Hulu added programming from a host of other television networks like ABC In 2009, Disney (ABC's parent company) acquired a 30% stake in Hulu.53 Hulu was entirely supported by ads until June 2010 when the company unveiled Hulu Plus, a premium subscription option for $9.99 per month, in addition to its free model. Hulu Plus featured fewer advertisements, a greater assortment of content, and could be accessed on mobile devices.\" It was accessible via PCs, gaming systems, and other hardware with streaming capabilities, while Hulu's free service remained available only on PCs55 Analysts suggested the new subscription model would help Hulu generate more revenue and better compete with Nett'lix.56 Hulu's subscription service grew steadily, with 1.5 million subscribers by 2011, 3 million by 2012, and over 5 million by 2013.57 In April 2015, the company announced it would drop the \"Plus\" moniker from the premium service in an effort to reduce customer confusion relating to Hulu's brandt58 Soon after, Hulu released a third offering, an adfree subscription option for $12 per month. Some programming still featured commercials, relegated to the beginning or end of a program.\" In August 2016, Hulu announced it would stop offering its free service and users would have to subscribe to one of its two paid servicesone with limited commercials and another with no commercials.\" By 2016, Hulu had more than 12 million subscribers.61 It remained jointly owned by FOX, Walt Disney Co. / ABC, Comcast/NBCUniversal, and Time Warner, which bought a 10% stake in the joint venture in 2016.52 1-1qu was valued at $5.8 billion63 Competitive Landscape In 2016, over 112 million videoon-demand subscriptions for television and movies were reported in North America, up 19 million from the previous year. Industry experts predicted that the number of Amazon Video subscriptions alone in the US. would grow from 30 million in 2015 to 49 million by 2021.\" Nelix was expected to have 59 million subscribers in North America by 2021, up from 53 million in 2016 (52 million of which would come from the U51). Netfli)(s North American video on demand revenues were expected to grow from over $53 billion in 2015 to over $6.8 billion in 2021}5 New competitorsincluding broadcast and cable networksentered the growing space, and approximately 55% of streaming services employed a subscription model.\" In 2015, 1-130 launched HBO NOW, an UIT service giving consumers access to HBO shows for $14.99 per month. 57 That same year, CBS, the only one of the "Big Four\" networks without an ownership stake in Hulu, unveiled its \"CBS All Access\" streaming package, allowing users to stream CBS shows for $6 per month.68 Hulu also faced competition from additional streaming services offered by its owners While the joint venture's partners licensed programming to Hulu, they also maintained individual sites which offered limited streaming access to shows on their broadcast networks as a way of capturing viewers and the ad revenue that was moving online. Increasingly, however, the venture's owners were starting paid subscription streaming services. For example, in 2016, Time Warner's Turner Classic Movies network debuted Filmstruck, a service offering classic and cult lms for a monthly fee of $699.69 Although Comcast's NBCU division had unsuccessfully launched Seeso, a comedy streaming service for $3.99 per month, the company was rumored to be preparing a new service modeled after CBS All Access that would offer programs from NBC plus many of the company' s cable networks including Bravo, USA, and SyFyt7\" Hulu Live TV and "Skinny Bundles\" The rise of cord-cutting and the rapid growth of Hulu and its O'I'l' competitors led the television ecosystem to quickly mutate. A number of companies saw an opportunity to use the Internet to become vMVPDs that provided \"skinny bundles" of OTI' and cable programming. While not a true \"a la carte" option, which would allow customers to pick and choose which channels they wished to receive, such vMVPD packages consisted of 10 to 20 channels and were marketed to \"cord-cutters\" and \"cord- nevers\" as a cheaper and simpler alternative to cable.71 In 2015, Dish Network launched Sling TV, the first multichannel live TV service that streamed over the Internet. For $20 per month, subscribers had access to 30 live TV channels including AMC, ESPN, and more.\" As the service grew in subscribers, it added a broader selection of content and more bundled options In 2016, Sony launched PlayStation VUE in the U.S., offering 60 channels for $39.99 per month. The service was available through PlayStation as well as other streaming devices such as Roku. Later that year, DirecTV launched its vMVPD, DirecTV Now, for $35 per month73 In April 2017, YouTube TV launched its own live bundle (initially available in select cities) featuring local channels, Bravo, Disney, ESPN, and others, for $35 per month 7' (See Exhibit 9 for vMVPD offerings.) Some industry observers predicted that the market for live skinny bundles could top 15 million US. subscribers by 2020. "Over time, we expect [virtual MVPDs] to be able to innovate faster than traditional distributors,\" one analyst noted.75 Given the potential size of the vMVPD market and Hulu's success in the O'I'I' space, the company's executives were condent in the new service's prospects With Hulu Live, CED Hopkins declared, "we can get people who have opted out of the system.\" 75 Hopkins explained that for $39.99 per month Hulu Live TV would give subscribers online access to roughly 50 television channels including live streams of the Big Four broadcasters.77 (See Exhibit 10 for channel listings of Hulu Live TV.) Hulu Live TV would also provide subscribers with access to its extensive programming catalog the option to add premium channels such as HBO, and a friendly user interface with a powerful recommendation engine Explained one senior Hulu executive, "You shouldn't have to think about whether something is live, recorded or on demand, or care about which device you're using. TV is about connecting with the shows, movies and sports you loveand we want to make that really easy for you, no matter where you're watching." 73 Despite the entry of numerous players into the space, the vMVPD business model had its share of skeptics Some analysts questioned Hulu Live TV's $39.99 per month price point and predicted that it would result in "razor-thin" margins for the company.'9 Programmers did not publicly revealed the fees that they charged Hulu, but based on one analyst estimate, Hulu's channel offering cost about $34 per month to license (see Exhibit 11 for a cost breakdown and Exhibit 12 for other Hulu financials)\" Hopkins was comfortable with the economics of Hulu's new MVPD business because it had three sources of revenue: (1) selling subscriptions to a "skinny bundle\" of programming, (2) upselling subscribers to premium services like HBO Now, and (3) highly targeted advertising. \"When you look at the entire package,\" Hopkins told an interviewer, \"you have the SVOD [which] is a fixed cost business by and large, packaged with this variable, over-thetop, pay TV business, and then infuse it when a really powerful ad platformwhen you put all that together, I think we got something pretty powerful/'31 Some industry experts wondered if Hulu Live TV would cannibalize the company' 5 existing SVOD business or compete with the businesses of its owners. Hopkins noted, \"I think our live service is really in support of the traditional MVPD business. [. . .] We have our SVOD product and we have this new live service, and I think both support that ecosystem."82 Hulu executives felt that rather than being a source of friction, its ties to its owners were an asset. As Brian Smith, Head of Experience explained, Hulu was able to \"start some conversations faster\" about acquiring content.\" For example, in 2017 when NBC relaunched its hugely successful comedy series Will 6' Grace, Hulu had exclusive SVOD rights to the program's original 194 episodes, the first time they had been available for streaming.84 Despite its access to programming from its owners, many felt that Hulu would also need to have a strong lineup of original programming to succeed. "Content is still king,\" one observer noted, \"Original programming is seen both as a strong value provider as well as means to bridge content licensing gaps.\"5 Although [-1qu had experimented with original programming starting in 2011 with the documentary series A Day in the Life, the company ramped up its commitment to scripted programming in response to growing competition. Hulu increased its number of original dramas from four in 2016 to 16 in 2017.\" In April 2017, 1-1qu released The Handmaid's Tale, a breakout hit based on the 1985 dystopian novel by Margaret Atwood. \"The Handmaid's Tuie...finally makes a Hulu subscription an actual must-have, instead of a convenience,\" one industry observer noted.\" Original programming was an expensive initiative for Hulu given the growing competition for actors, directors, and scripts. "The cost of produdng an original series is becoming similar to the cost of making a feature film," one expert explained,\" The OTI' service CBS All Access spent $8 million per episode on its revival of the Star Trek series89 while the popular Netflix series Sense 8 cost a reported $9 million per episode. 9 HBO's hit Game of Thrones cost approximately $10 million per episode 91 Competitors seemed to have bottomless pockets. One publication scoffed that with a $4.5 billion programming budget, \"Amazon is spending an insane amount of money to catch up to Nett'lix,"92 Hulu vowed to keep up. One Hulu executive noted, \"We're absolutely spending on par with Amazon as far as development goes."93 What' 5 Next for Hulu? Industry experts believed that the Hulu Live TV offering, with its multiple channels, could provide the company with a powerful new way to compete against its rival Netflix.94 But could Hulu Live TV attract the \"cord-cutters\" who were leaving traditional MV'I'Ds? And could Hulu provide the same level of signal quality and service as established providers? Rivals in the industry were skeptical. \"I don't think direct-toconsumer is for the faintofheart,\"95 said Comcast executive Matt Straus "You're responsible for billing and the quality of service, and I can tell you that tolerance when video isn't working doesn't exist/'96 Hopkins believed that compelling original programming was crucial to Hulu's continued growth. \"Original programming,\" he declared, \"(is) the one thing you can have on your service that is exclusive to you, and for us I think it's really important that we continue to invest there/'97 But with established players like Netix and Amazon dramatically increasing their budgets and new entrants from the tech eld like Apple and Google joining the fray, could Hulu spend enough to effectively compete? Importantly, how would the possibly conicting agendas of its ovmers affect Hulu's growth? Just three months after the debut of 1-1qu Live, venture partner Disney made an announcement that took the industry by surprise. The company' s CEO Robert Iger stated that Disney was embarking on \"an entirely new growth strategy/'93 Disney would forgo hundreds of millions of dollars from licensing its programs to Netix and would instead launch subscription OTI' services featuring its own brands including MVPD mainstay ESPN, Pixar and others99 "The skinny bundle business has hardly even gotten started,\" one Forbes columnist noted, "but you must wonder what impact the Disney moves will have on new services from Sling TV to DirecTV Now to Hulu's live TV offering."1m Hulu and its rival vMVl-'Ds were creating newand unprovenbusiness models Would the new services appeal be limited to existing \"cord-cutters" and \"cord-nevers,\" or would they capture existing MVPD customers and hasten subscriber declines of the legacy players? In 2017, one analyst predicted \"a highly volatile period of entry and exits\" in the live skinny bundle space over the next two years.\"1 Was Hulu Live TV well-poised to win? Hulu executives needed to decide how to best position their offering. Did the $39.99 per month price point make sense? Was pursuing increasingly expensive original programming viable? \"Gone are the days when there is a clear formula to follow,\" one observer commented. 102 How should Hulu compete
