Hulu’s Peter Naylor: ‘Conventional TV has hit its ceiling and the ceiling is coming down’

Already the market leader in over-the-top advertising, Hulu is prepping for another big year as viewers continue to flock to connected TV screens — and advertisers chase after them.

For instance, Hulu has grown its revenue from direct-to-consumer and performance marketers by 85 percent year over year, the company said. Peter Naylor, Hulu’s svp of ad sales, did not say how much of Hulu’s overall ad business, which totaled $1.5 billion in 2018, is coming from DTC companies; but the streaming video giant is already working with more than half of the DTC companies listed in the IAB’s list of top 250 DTC companies, Naylor said.

“The estimate is that there are about 3,000 of these companies who are disruptor brands and DTC brands — we are chasing that,” said Naylor. “The growth is coming, and we like it.”

Hulu has more than 50 million ad-supported viewers per month, according to Comscore. Naylor spoke about the growth of Hulu’s ad business, how the company has been taking advantage of brand-safety issues on social platforms and other areas of growth. The conversation has been lightly edited for clarity.

“Budget safety” was a big part of Hulu’s pitch last year: that the industry needed to come together on the definition of brand safety and focus on issues such as viewability, third-party verification and domain spoofing. Has any real progress been made?
Brands have a very good understanding that the social platforms carry an amount of risk. And brands need to decide for themselves what they are comfortable with. There is definitely a spectrum: There are advertisers who say that if even one impression is served against something that’s hateful or awful, it’s one impression too many and they just have to retreat. There are other brands where it’s a little bit more than a shrug; it’s a calculated balance of risk and reward for them. There has been some progress such as with ads.txt, which publishers have embraced and is consistent.

Advertisers love to act concerned when a brand-safety issue is brought to life. But how much of that is just posturing? Some of them will leave YouTube and will be back a few weeks later.
Some people really do take it seriously. During this most recent issue, we had people calling in and saying, “Can I give you more of my budget?” They are shifting budgets. Is it a tsunami of people rushing away? No. But does our phone ring? Absolutely.

The nice thing for us is there is increasing scale in our [OTT] market. And advertisers understand that while all of the platforms are very different, if you’re trying to figure out how to redeploy video impressions, we’re a wonderful alternative. We have a risk-free place to put media.

You have to admit that this is a great position to be in for a company like Hulu. You have movies and TV shows. And pre-rolls and mid-rolls. Is it even possible for an ad to not be viewable on Hulu?
To be totally transparent: 80 percent of our viewing happens in the living room, and it’s app-based. Fourteen percent is happening on tablets, and that’s app-based. The app viewers are 100 percent viewable. The only area that might be a modest challenge is desktop — where we are 99.6 percent viewable. We only sell on completion rates. It’s a bit disarming to a media buyer who wants to find an objection during negotiations.

But that’s what I mean: Not everyone can be Hulu or in OTT.
The OTT space enjoys some unique attributes, which is why I am bullish on the entire space. TV is the most powerful form of advertising ever created, but conventional TV has hit its ceiling and the ceiling is coming down. Marketers want TV alternatives and OTT does that. It’s also the superior alternative because it’s on demand, and the audience is more digitally native than on linear. Everything we’re doing today is inevitably where everything [in TV] will be sometime in the future.

What’s a real challenge for you then?
We have half of television’s ad load, but we recognize that’s still an interruptive ad model. We are embracing new models, complementary ad models. One of our stated goals is to have 50 percent of our ad revenue be non-intrusive in the next three years. It’s kind of a moonshot statement, but I think the pause ad will be one of the things that gets us there.

How much are these new types of ad units just a way to open up inventory? The narrative on Hulu is that there’s usually more demand than supply, right?
But we have to be viewer-first. People will be tolerant for as long as the ads are thoughtful and relevant. When you go too far, when you start jamming ads, that’s when you risk people leaving. And we have an ad-free version, which is just one click away. So we do have to be careful of the ad load.

How much ad revenue are you expecting this year?
It’s growing sharply. I don’t know if I should give you a number. Last year, the year-over-year growth was 45 percent. Look at our subscriber growth, which has been well documented [Editor’s note: 25 million subscribers]. Engagement and time spent is up by 77 percent. All of that means there is more inventory and more audience that we can bring to marketers. We’re expecting extraordinarily handsome growth — without putting a number on it.