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Hulu beats competition in bid for The VGP recommendation engine

Over-the-top TV provider Hulu LLC is among the latest in the sector to bet on discovery, curation and search to differentiate its service from a growing number of digital video platforms.

Digital video platforms often license software for their discovery and recommendation services from companies like Ooyala, Brightcove and Rovi Corp. However, with its recent purchase of The Video Genome Project, Hulu is positioned to go the way of Netflix Inc. with an in-house discovery system. Netflix is widely considered the best in the recommendation business, but The VGP believes its solution could be a game changer.

"Google didn't just shift advertising; Google actually opened up a whole new pie," VGP CEO Xavier Kochhar said in an August interview with S&P Global Market Intelligence. "We're doing the same for video."

Hulu and The VGP were unable to comment on the deal specifically, but a source close to the matter told S&P Global that Hulu was not the only bidder on The VGP. The startup had narrowed down discussions and was in negotiations with another digital video provider when Hulu expressed interest in the company, the source said.

Distributors like Inc., HBO, Showtime/Viacom and many other networks going over the top would potentially be interested in a smart discovery solutions platform, and the source said bidders included some of the most recognizable names in the digital video business as well as multichannel video programming distributors.

Adding usage data like that from Hulu to the video metadata compiled by The VGP will be key to the software reaching its full potential as a personalization tool, the source added. For Hulu, the company benefits from a massive catalog of video data and saves any licensing fees from third party services. To illustrate the opportunity, Hulu said in its merger announcement that 75% of viewing on the platform is driven by recommendations.

"Discovery becomes a problem the more content you have," Greg Sterling, vice president of The Local Search Association, said in an interview. "If people don't know about [Hulu's content], they're not consuming it, and if they're not consuming it their perception of the value of Hulu will be less than it could be."

The recommendation engine market is expected to grow from $68 million in 2015 to $207 million in 2020, according to SNL Kagan analyst Michelle Abraham, but some believe that could be a conservative estimate.

"Really up to now Google has owned browser search. It's intriguing to me that no one really owns video search yet," L.E.K. Consulting head of media and entertainment Dan Schechter said in an August interview, pointing to Netlfix's estimate that its recommendation engine is worth about $1 billion a year.

Hulu's owners include Walt Disney Co., 21st Century Fox Inc., Time Warner Inc. and Comcast Corp.'s NBCUniversal Media LLC.