Hulu An Evil Plot To Destroy The World Case Analysis

Introduction to Net Present Value (NPV) - What is Net Present Value (NPV) ? How it impacts financial decisions regarding project management?

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Hulu An Evil Plot To Destroy The World.Hulu - An Evil Plot to Destroy the World Question 1: List the various groups of customers that Hulu’s business encompasses. Would it be possible for Hulu’s decisions to satisfy all parties simultaneously? Response: The Hulu platform business model encompasses the following groups of customers.

NPV solution for Hulu: An Evil Plot to Destroy the World? case study

At Oak Spring University, we provide corporate level professional Net Present Value (NPV) case study solution. Hulu: An Evil Plot to Destroy the World? case study is a Harvard Business School (HBR) case study written by Anita Elberse, Sunil Gupta. The Hulu: An Evil Plot to Destroy the World? (referred as “Hulu Online” from here on) case study provides evaluation & decision scenario in field of Sales & Marketing. It also touches upon business topics such as - Value proposition, Internet, Marketing.
The net present value (NPV) of an investment proposal is the present value of the proposal’s net cash flows less the proposal’s initial cash outflow. If a project’s NPV is greater than or equal to zero, the project should be accepted.

NPV = Present Value of Future Cash Flows LESS Project’s Initial Investment

Case Description of Hulu: An Evil Plot to Destroy the World? Case Study

To maximize their effectiveness, color cases should be printed in color.In July 2009, Jason Kilar, the chief executive officer of Hulu, is debating whether the online video aggregator should move away from a purely advertising-supported model, and whether it should participate in an industry-wide initiative to develop and test 'authentication' technology that can facilitate a subscription or pay-per-view model. The case traces the early years of Hulu, a joint venture between News Corp. and NBC Universal, that was initially met with strong skepticism but quickly became on the most celebrated and popular online video business. Provides in-depth information on how the company serves content owners, users, and advertisers. Describes the online video space in considerable detail, also covering economic and viewership statistics that enable a rich discussion of viable business models. Topics Include: Advertising Media, Business models, Digital Technology, Distribution Channels, Internet, Online Media, Television and Videos.

Case Authors : Anita Elberse, Sunil Gupta

Topic : Sales & Marketing

Related Areas : Internet, Marketing

Calculating Net Present Value (NPV) at 6% for Hulu: An Evil Plot to Destroy the World? Case Study

Years	Cash Flow	Net Cash Flow	Cumulative Cash Flow	Discount Rate @ 6 %	Discounted Cash Flows
Year 0	(10008189)	-10008189	-	-
Year 1	3443399	-6564790	3443399	0.9434	3248490
Year 2	3954058	-2610732	7397457	0.89	3519098
Year 3	3939893	1329161	11337350	0.8396	3308010
Year 4	3244034	4573195	14581384	0.7921	2569579
TOTAL	14581384	12645176

The Net Present Value at 6% discount rate is 2636987

In isolation the NPV number doesn't mean much but put in right context then it is one of the best method to evaluate project returns. In this article we will cover -

Different methods of capital budgeting

What is NPV & Formula of NPV,
How it is calculated,
How to use NPV number for project evaluation, and
Scenario Planning given risks and management priorities.

Capital Budgeting Approaches

Methods of Capital Budgeting

There are four types of capital budgeting techniques that are widely used in the corporate world –
1. Net Present Value
2. Internal Rate of Return
3. Payback Period
4. Profitability Index

Apart from the Payback period method which is an additive method, rest of the methods are based on Discounted Cash Flow technique. Even though cash flow can be calculated based on the nature of the project, for the simplicity of the article we are assuming that all the expected cash flows are realized at the end of the year.
Discounted Cash Flow approaches provide a more objective basis for evaluating and selecting investment projects. They take into consideration both –
1. Timing of the expected cash flows – stockholders of Hulu Online have higher preference for cash returns over 4-5 years rather than 10-15 years given the nature of the volatility in the industry.
2. Magnitude of both incoming and outgoing cash flows – Projects can be capital intensive, time intensive, or both. Hulu Online shareholders have preference for diversified projects investment rather than prospective high income from a single capital intensive project.

Formula and Steps to Calculate Net Present Value (NPV) of Hulu: An Evil Plot to Destroy the World?

NPV = Net Cash In Flowt1 / (1+r)t1 + Net Cash In Flowt2 / (1+r)t2 + … Net Cash In Flowtn / (1+r)tn
Less Net Cash Out Flowt0 / (1+r)t0
Where t = time period, in this case year 1, year 2 and so on.
r = discount rate or return that could be earned using other safe proposition such as fixed deposit or treasury bond rate. Net Cash In Flow – What the firm will get each year.
Net Cash Out Flow – What the firm needs to invest initially in the project.
Step 1 – Understand the nature of the project and calculate cash flow for each year.
Step 2 – Discount those cash flow based on the discount rate.
Step 3 – Add all the discounted cash flow.
Step 4 – Selection of the project

Why Sales & Marketing Managers need to know Financial Tools such as Net Present Value (NPV)?

In our daily workplace we often come across people and colleagues who are just focused on their core competency and targets they have to deliver. For example marketing managers at Hulu Online often design programs whose objective is to drive brand awareness and customer reach. But how that 30 point increase in brand awareness or 10 point increase in customer touch points will result into shareholders’ value is not specified.
To overcome such scenarios managers at Hulu Online needs to not only know the financial aspect of project management but also needs to have tools to integrate them into part of the project development and monitoring plan.

Calculating Net Present Value (NPV) at 15%

After working through various assumptions we reached a conclusion that risk is far higher than 6%. In a reasonably stable industry with weak competition - 15% discount rate can be a good benchmark.

Years	Cash Flow	Net Cash Flow	Cumulative Cash Flow	Discount Rate @ 15 %	Discounted Cash Flows
Year 0	(10008189)	-10008189	-	-
Year 1	3443399	-6564790	3443399	0.8696	2994260
Year 2	3954058	-2610732	7397457	0.7561	2989836
Year 3	3939893	1329161	11337350	0.6575	2590544
Year 4	3244034	4573195	14581384	0.5718	1854787
TOTAL	10429426

The Net NPV after 4 years is 421237

(10429426 - 10008189 )

Calculating Net Present Value (NPV) at 20%

If the risk component is high in the industry then we should go for a higher hurdle rate / discount rate of 20%.

Years	Cash Flow	Net Cash Flow	Cumulative Cash Flow	Discount Rate @ 20 %	Discounted Cash Flows
Year 0	(10008189)	-10008189	-	-
Year 1	3443399	-6564790	3443399	0.8333	2869499
Year 2	3954058	-2610732	7397457	0.6944	2745874
Year 3	3939893	1329161	11337350	0.5787	2280031
Year 4	3244034	4573195	14581384	0.4823	1564445
TOTAL	9459849

The Net NPV after 4 years is -548340

At 20% discount rate the NPV is negative (9459849 - 10008189 ) so ideally we can't select the project if macro and micro factors don't allow financial managers of Hulu Online to discount cash flow at lower discount rates such as 15%.

Acceptance Criteria of a Project based on NPV

Simplest Approach – If the investment project of Hulu Online has a NPV value higher than Zero then finance managers at Hulu Online can ACCEPT the project, otherwise they can reject the project. This means that project will deliver higher returns over the period of time than any alternate investment strategy.
In theory if the required rate of return or discount rate is chosen correctly by finance managers at Hulu Online, then the stock price of the Hulu Online should change by same amount of the NPV. In real world we know that share price also reflects various other factors that can be related to both macro and micro environment.
In the same vein – accepting the project with zero NPV should result in stagnant share price. Finance managers use discount rates as a measure of risk components in the project execution process.

Sensitivity Analysis

Project selection is often a far more complex decision than just choosing it based on the NPV number. Finance managers at Hulu Online should conduct a sensitivity analysis to better understand not only the inherent risk of the projects but also how those risks can be either factored in or mitigated during the project execution. Sensitivity analysis helps in –

Understanding of risks involved in the project.

What can impact the cash flow of the project.

What will be a multi year spillover effect of various taxation regulations.

What are the key aspects of the projects that need to be monitored, refined, and retuned for continuous delivery of projected cash flows.

What are the uncertainties surrounding the project Initial Cash Outlay (ICO’s). ICO’s often have several different components such as land, machinery, building, and other equipment.

Some of the assumptions while using the Discounted Cash Flow Methods –

Projects are assumed to be Mutually Exclusive – This is seldom the came in modern day giant organizations where projects are often inter-related and rejecting a project solely based on NPV can result in sunk cost from a related project.
Independent projects have independent cash flows – As explained in the marketing project – though the project may look independent but in reality it is not as the brand awareness project can be closely associated with the spending on sales promotions and product specific advertising.

References & Further Readings

Anita Elberse, Sunil Gupta (2018), 'Hulu: An Evil Plot to Destroy the World? Harvard Business Review Case Study. Published by HBR Publications.

All quotations and references refer to “ Hulu: An Evil plot to Destroy the World” unless otherwise noted. 1) Hulu succeeded while everyone predicted its failure due to the following reasons:. Hulu harnessed existing technologies namely online video and broadcast media to create a new platform that was “focused on helping users find and enjoy the world’s premium, professionally produced content when where and how they want it”. The platform brought together professional content owners/providers, advertisers and content consumers/users in a platform mediated network. Rather than choose to be a destination site or syndicate content, Hulu chose to be both by being an aggregator of online video. There were web sites that did this for user generated content but Hulu was a leader in this space for professionally generated content. The business model for Hulu’s platform is 100% advertising supported.

Hulu’s platform model consists of 3 nodes – content providers, advertisers and users. The ‘subsidy side’ in this network is the users who use the platform for free while the ‘money side’ is the advertisers who pay Hulu for running their advertisements. Hulu on the other hand pays content providers for showing their content on the platform. The more the number of users on Hulu the more advertisers value the platform and are attracted to advertise on it. Also, the more the content available on Hulu the more users are attracted to the platform and subsequently, the more the revenue that can be generated from advertising. Hulu leveraged the cross side network effect between content providers and users by partnering strategically with over 170 content providers including the most popular broadcast and cable networks in the United States. The content providers “participated in the value created through the distribution of their content”, providing the incentive for them to continue their support of the Hulu platform.

Hulu partnered with.References: Andrew McAfee &Erik Brynjolfsson (July-August 2008). What Makes a competitive difference. Harvard Business Review, pg 100.Identify what the best interests of content owners, advertisers and audience are? How does Hulu serve them in the meantime?There are two interests of content owners. One is advertising revenue. Most of the content owners are also the equity partners of Hulu; therefore, they receive around 70% of the advertising revenue generated by the content they provided. As for non-equity partners, share of advertising revenue vary from different content owners.

The other is attracting new viewers. According to the case, Hulu is able to grow the audience of cable networks by 20% for any single episode. Also, Hulu does not require contracts to be exclusive, meaning content owners can make deal with other sites. The best interest of advertisers is increasing the efficiency of their advertisement. Hulu aims to provide a “more targeted, interactive, and effective advertising experience.” First, Hulu provides three different advertising formats: standard format, premium format and exclusive format.

Advertisers can choose one of these format which best fit their needs. Besides, Hulu’s feedback system allows users to “thumb up” or “thumb down” advertisement. Second, Hulu, as a on-line broadcaster, is able to trace users’ browsing habits and deliver the advertisement that the users have interest in. This significantly “increase relevancy to users and increase efficiency for advertisers.” As for.both are online video sites that aggregate the content of other sources, YouTube provides a platform to upload, share and view short videos and contains primarily user-generated content (and unauthorized copies of copyrighted content). In contrast, Hulu is professionally created and provides full-length, legally sourced, premium television and video content.How does Hulu serve consumers, content owners and advertisers? Do the needs of these different groups converge?Hulu serves it consumers by providing a large library of premium, professionally produced content and enabling them to view the content when, where, and how they want with a much lower advertising load than traditional television.

Hulu’s site design is user friendly: intuitive, free of clutter, and easy to navigate, play video, and share content. Users also play a prominent role in shaping the site on an ongoing basis.

Hulu serves content owners by providing a distribution channel for them to grow their audience. Hulu also gives them a share of the advertising revenues generated by their content, allows them to make content distribution agreements with other sites, and enables them to connect with users across other destinations to bring the content to the audience. Hulu serves advertisers by enabling them to target specific market segments, making their promotional efforts more effective and efficient. It also offers. Hulu AlliancesBrigitte NicholsMGT/625April 5, 2014Steven GaaHulu Alliances1.Describe the alliance partners.

Characterize the market type as slow, fast, or standard cycle. The market type is a fast cycle market characterized by firms participating in number of networks for the purpose of production and distribution. Competitive advantages aren’t sustainable in fast cycle markets. Firms competing in fast cycle markets recognize the importance of speed, to get the product or service out there first.2.

Characterize the type of strategic alliance Hulu has become. Hulu has become a dynamic alliance. The same type as most firms in the information technology industry. Another example isthe movie industry, an industry in which firms participate in a number of networks for the purpose of producing and distributing movies.

In dynamic alliance networks, partners typically explore new ideas and possibilities with the potential to lead to product innovations, and entries to new markets.3. In what type of market is Hulu competing?

Hulu is competing in the streaming media market. It has a tough competitor which is Netflix. Unfortunately for Hulu, Netflix has been around a lot longer and has had plenty of time to build its partner base. The other problem for Hulu is its parent companies do not take Hulu seriously. Instead of giving programming. Hulu - An Evil Plot to Destroy the WorldQuestion 1:List the various groups of customers that Hulu’s business encompasses.arguments are much more common than we may think, and they tend be persuasive to the casual listener or reader.

Politicians, celebrities, and advertisement commercials constantly make use of them. As an example of a fallacy, I’m going to use the Hollywood celebrity Alec Baldwin in the commercial for Hulu.Alec Baldwin is known for his success in the movie industry.

His career began on television in an NBC soap opera called “The Doctors” throughout the years 1980-1982 (“Alec Baldwin” 1). He is currently one of the most well known actors in Hollywood. During the last Super Bowl, he stared in a commercial for Hulu; a website that offers streaming for free movies, TV shows, NBC shows, and so on. The fallacy “False Authority” is used throughout this commercial.

First, when Alec Baldwin begins the commercial stating that he’s not only a TV star, but he also knows about TV services (“Hulu’s Super Bowl Commercial”). He manipulates the audience by making them think that what he is saying is accurate, and that we should purchase the product because of it. Second, he distracts the audience from the real issue by using statements like: “We’re aliens, and that’s how we roll.” He proceeds to talk about Hulu as if he were the one who invented and created it when he didn’t come close to earning a Computer-Science degree in college. The commercial’s purpose is to make profit. By using a well-known celebrity, they increase their sales.Lillian GouldProfessor: Dr.

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