Hulu’s ad sales chief Peter Naylor is out to change television advertising for the better.
Amid an ever-increasingly competitive landscape for streaming services, Naylor, who headed up digital advertising sales at NBCUniversal before making the jump to Hulu in 2014, is working on honing the platform’s offerings for users and for advertisers, including non-interruptive binge ads and pause ad formats that Naylor says are intended to respect users.
“Just because they have opted into seeing ads doesn’t mean we can take advantage of it,” Naylor said. “We know our viewer is one click away from going to an ad-free experience, so that keeps us on our toes.”
As the competitive landscape for Hulu gets even more crowded, Naylor said he’s focused not on potential competitors, but on innovating inside Hulu’s own framework.
“We’re in this massive area of opportunity where things should be challenged, questioned and reimagined,” Naylor said. “I’m most excited about the ability to change the shape of TV.”
I’ll be talking with Naylor on stage at Adweek’s NexTech event in New York on July 24. In the lead-up to our onstage conversation, we chatted in June about the state of OTT and what marketers wanted to talk about at Cannes.
This interview has been condensed and edited.
Adweek: You just came back from Cannes Lions. What were advertisers most interested in talking to you about there?
Peter Naylor: There’s this massive surge of requests for research. In the sales business, we call that a buy signal. They’re asking because they intend to move the money, and they need supporting research that shows it’s a good idea. They just need some hand-holding and some proof.
Another big topic is creative. Creatively, so much of what we run at Hulu are 15 and 30-second spots, but the real opportunity is to break some of those molds. I can do any length that the marketer needs to tell their story effectively. People need to remember that all on-demand viewing happens through an IP address, so anything that can happen in the browser creatively can happen in the TV space creatively. You can also go outside of the conventional break or interruptive ad. We introduced a pause ad [format] because we know that about a billion times a month, 30 million times a day, people hit pause. We also announced we’re going to have a series of binge ad [formats], because only we can see this kind of viewing behavior.
Everybody is interested in the opportunity for content integration. Content is such a big differentiator for everybody, and when there’s a chance to integrate into those shows creatively, brands are looking for a way to associate their brands with our IP.
What has the upfront demand been like for your new binge and pause ad formats? How are they being deployed?
For the pause ads, we have two beta advertisers from some of the worlds’ biggest advertisers: Coca-Cola and P&G. For Coca-Cola, it’s the master brand Coke itself. When you hit pause, imagine copy that says, “For a pause that refreshes.” It’s contextually relevant. Then there’s Charmin, which is the brand from P&G, and when you hit pause it says, “Enjoy the go” with the Charmin bear. It’s contextually cute and interesting.
When it comes to the binge ad, we haven’t launched our beta yet, but I can give you some examples for how we intend to use it. If someone’s watching the second episode of a series in a row, we can anticipate that they’re going to watch a third and can serve an ad that says, “If you want to watch this long-form piece of content from our advertiser, we’ll serve your next piece of content commercial-free.” Or if someone is on their second or third episode, a brand like DoorDash or UberEats might serve a message saying, “Before another episode, how about some food to power you through your binge of this series?”
We also do catch-up viewing. We’re bringing back Veronica Mars, and we’re going to drop the original three seasons in anticipation for the Hulu Original Season 4 coming out [July 26], so we know anybody watching is doing some form of catch-up. That’s another opportunity for a marketer to acknowledge the situation—that someone is catch-up viewing—and serve a contextually creative message.
Something Hulu emphasizes is its philosophy of being consumer-first, viewer-first. How do you think about that philosophy when you’re coming up with new ad formats, and how does that philosophy guide your decision-making?
You want to have the most consistent experience possible so people aren’t thrown for a loop, and you want to be restrained. If you see what’s happening in conventional TV, they just keep adding more and more ad units to meet their business objectives. What we have declared is that we will never serve an ad rate longer than 90 seconds. We have frequency caps in place. And what we really want [with binge and pause ads] are non-interruptive units that are complementary to the viewer experience.
Viewer-first means to look for new ways for marketers to market while we can still enjoy a nice relationship with our viewer, who has opted in to seeing ads. Just because they have opted in to seeing ads doesn’t mean we can take advantage of it. We know our viewer is one click away from going to an ad-free experience, so that keeps us on our toes.
How do you view the competitive landscape for OTT right now? How are you trying to prepare the ad-sales side of Hulu as there are more entrants or soon-to-be entrants into the space?
In my mind, what will happen in the OTT space in the future has already been happening in the conventional media space. You’ll need to either differentiate or bulk up. You see bulking up in traditional media with Discovery and Scripps getting together, Disney acquiring the Fox assets, AT&T and Time Warner. Everybody expects that Viacom and CBS have something coming. We’re part of the Walt Disney company now, and they’re going to help us to continue differentiating with our content, with our international expansion. It’s nice to be part of their bigger world.
These startups are all going to try to figure out where there is some white space. If they’re not offering something for a lot of people, they better be really niche or differentiated. All of this competition, it does breed innovation. When we go back to our viewer-first ad experience, it goes back to how Hulu is going to be differentiated and special at a point in time when a lot of people are saying they’re differentiated and special. Well, the market will decide.
You mentioned how Hulu is now part of the Disney company. How does that change your ad sales approach? Any indications on what might change in the future?
All indications are to keep our heads down and keep doing what we’re doing. We’re both in the upfront market talking to the country’s largest TV marketers. Where Hulu is different is that because we’re served through an IP address, I have many demand sources for our inventory. I have a nice team going against the local and regional effort in addition to my national team, and I also have a programmatic team. We’ve also set up a direct-to-consumer sales effort because we’re a direct-to-consumer brand, too, so we share pages out of our playbook. We have many demand sources and we’ve created teams to go after all these markets, and that’s why right now the Walt Disney company is saying to just keep doing what we’re doing, keep growing. We love their support.
One-hundred-twenty-five top DTC brands have upped their television spend considerably, according to the VAB. How are DTC brands’ approaches to OTT television different from other marketers?
One of the big differences between these companies and Fortune 500 companies is their key focus is on return on investment and understanding the return on ad spend. These companies’ marketing efforts are all borne on social media, where primarily you’re talking about copy-rich ads and image-rich ads. Sooner or later they also decide they need to tell their story and use video to tell their story. That’s where TV comes into play. The easiest on-ramp onto TV is OTT. All the things they love about their social media—the ability to target with precision and real-fast feedback—we can do in the TV space on Hulu. Our DTC ad revenue is up 85% year over year.
How has programmatic on Hulu grown? What does that space look like going into the second half of 2019?
Some people buy us programmatically because they’re just trying to put things through the same pipes for measurement and the management of their media. They’re just buying it conventionally but putting it through programmatic pipes. We stood up our private marketplace at the beginning of the year. What we don’t do is put anything on an open exchange. It’s all a private-exchange, and it’s only invite-only auctions. We want to make sure we’re very careful. We have 90-second pod frequency, which is two or three ads per break, so we want to protect against category collision. Because 80% of viewing habits are in the living room environment, we have to make sure every piece of creative has a nice, big fat file size so if it’s seen in a high-def environment, it looks and sounds beautiful.
In an open exchange where anybody can bid on your inventory, that also means anybody can resell your inventory. I don’t want anybody anywhere buying my inventory and deciding to serve whatever they choose. Not to get political, but that’s how bad things can happen, when all of a sudden ads are getting served into your environment that you haven’t vetted for content or creative quality. We’re very protective.
What part of the business do you think has the most potential?
I’m being asked so much about the TV measurement of the past, and it’s so exciting to say that we can and should do better. We can and should reinvent measurement. We can and should reinvent the shape of advertising. To me, we’re in this massive area of opportunity where things should be challenged, questioned and reimagined. I’m most excited about the ability to change the shape of TV. Viewers have already changed the habit of how and where and what they want on TV.
The other thing that makes me so optimistic about the future of OTT is just that the most prestigious television content is happening in this space, as evidenced by the caliber or people who are creating content here. The content is awesome. And the promise of acceleration is huge with the bandwidth explosion everyone anticipates with 5G. Plus, the hardware itself, when you see all these TV manufacturers getting more innovative, better and smarter. Those three things—content, bandwidth and hardware—means that the future of OTT is just going to be big.