What Hulu needs to beat Netflix

This year, Hulu scored its first Golden Globe nomination for its comedy "Casual."

The nomination is a big deal, not just because it gives Hulu executives something to brag about to their Hollywood friends, but because it suggests that Hulu's investment in original content is starting to pay off.

This is crucial to Hulu's future, according to Michael Callahan, who used to be in charge of customer service at Hulu. Hulu is now on "the list" of streaming services that have produced award-worthy content. That list is short: Netflix, Amazon, and now Hulu.

"It elevates Hulu in stature," he says. If Hulu is to become a major player in the market, people need to see it not just as a place where cable companies dump content, but as a brand viewers can love, and by extension, be loyal to.

Loyalty is king

Loyalty is the name of the game for places like Netflix and Hulu going forward, Callahan says. "It's much easier to keep a customer than acquire a new one," he explains.

High turnover has been one of Hulu's nagging problems. According to research by Parks Associates earlier this year, around 50% of Hulu's subscriber base had canceled their subscriptions in the last 12 months. Netflix's turnover was only 9%.

What is Netflix's secret?

People are loyal to content, Callahan says, and a way to keep viewers is to create blockbuster original shows - the kind they just can't live without. This is one reason Netflix, Amazon, and Hulu are all pouring money into originals.

Netflix has led the way, and has produced shows that are, by some measures, superior to those of the major broadcast networks. But Netflix isn't resting on its laurels. The company has publicly pledging to double its output of original shows to 31 in 2016.

"Netflix still has a lead in original content, but Hulu is investing and trying to catch up," Nomura Securities media analyst Anthony DiClemente told the Los Angeles Times.

Shedding its past

Hulu's origins may be one reason why it's been relatively late to understand the importance of high-quality original content. Hulu is owned by TV networks, and was originally conceived of as a way to curb piracy of network shows.

According to the Los Angeles Times, former Hulu CEO Jason Kilar fought with Hulu's owners over the direction of the business. He wanted to move it toward the changing desires of consumers, spurred by Netflix, while the owners wanted to use it to preserve their old business models.

Kilar is gone, but Hulu seems to finally be embracing its status as one of the digital disruptors. It has its own brand, its own customers, and now needs a way to keep them happy.

"Prior to 2013, Hulu didn't have a retention strategy, it had an acquisition strategy," Callahan says.

But as the market matures, loyal customers are vital, Callahan says. They are more willing to watch your new shows, upgrade to better services, evangelize the brand, and forgive you when something goes wrong. They are your backbone.

That backbone, for the streaming giants, seems to increasingly rely on how good their original shows are. Hulu seems to recognize this, and is making progress. Indeed the Los Angeles Times has already declared Hulu's transition from "underdog" to "player" in the streaming world.

Callahan is less definitive. "2016 will tell us whether or not [Hulu's efforts] are paying off," he says.

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.