Digital live TV has terrible margins. Hulu CEO Randy Freer says he's found a way around that.

Randy Freer

Digital live-TV packages are reported to have terrible profit margins.
But Hulu may have cracked the code for improving its margins with its live-TV service, Hulu with Live TV.
That's because more than half of subscriber viewing on Hulu with Live TV is on video-on-demand programming, Hulu CEO Randy Freer said in an interview with Business Insider.
Hulu keeps all the ad revenue from the on-demand content, whereas it keeps only 15% of the ad revenue generated by the live service.

Digital live-TV packages were once considered a way to ease the pain caused by the slow death of pay TV, but their margins are horrible, and their growth has already started to slow.

But Hulu with Live TV, the nearly two-year-old startup often called Hulu Live, has boosted its margins because more than half the viewing by subscribers occurs on the service's more lucrative on-demand programming, Hulu CEO Randy Freer told Business Insider.

In other words, people may sign up for the live content at first but end up watching a lot of on-demand programming while they're using the service.

Hulu included its entire on-demand library in the live service to differentiate it from competing streaming services like YouTube TV or PlayStation Vue.

The percentage of on-demand versus live viewing varies by time of year. But the on-demand viewing helps Hulu because it keeps all the revenue from the advertising sold on on-demand content but only 15% of the ad revenue it gets from the live service. Hulu didn't specify how much margin improvement it had seen.

Hulu Live has both ad-free and ad-supported tiers, so it sees this ad-revenue benefit only on the ad-supported tier's VOD content. The company didn't say what percentage of Live subscribers take the ad-supported service, saying only that it's the majority. For context, of Hulu's overall customer base, 60% subscribe to its ad-supported tier versus and 40% subscribe to the ad-free service, Freer said.

As of September, the last time Hulu publicly shared figures, the company had more than 1 million Live subscribers. Hulu, YouTube TV, and Sony PlayStation Vue — three of the five largest virtual multichannel video programming distributors, or vMVPDs, by subscribers — don't regularly report these numbers. But Bloomberg reported over the weekend that Hulu Live and YouTube TV together had about 3 million subscribers, citing people with knowledge of the matter.

Freer acknowledged that he'd "love a little more predictability" in the number of Hulu Live subscribers. But subscription habits are beginning to take shape, helping Hulu forecast the ebb and flow of subscribers.

A fair number of people subscribe to Hulu Live service in September to watch NFL and college football and then unsubscribe after the Super Bowl, Freer said. And some switch between Hulu Live and Hulu's $6-a-month ad-supported VOD service, so Hulu doesn't necessarily lose those customers for good.

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