Digital live TV has terrible margins, but Hulu has found a way around that with its own live service

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Brooklyn Nine-Nine was one of Hulu's top streamed shows of 2018.

• Digital live TV packages are reported to have terrible profit margins.
• But Hulu may have cracked the code to improving its margins on its live TV service.
• That's because more than half of subscriber viewing on the live service, Hulu with Live TV, is on video-on-demand programming, Hulu CEO Randy Freer said in an interview with Business Insider.
• Hulu keeps all the ad revenue from the on-demand content whereas it only keeps 15% of the ad revenue generated by the live service.

Digital live TV packages were once considered a way to ease the pain caused by slow death of pay TV, but their margins are horrible and their growth has already started to slow.

But nearly 2-year-old Hulu with Live TV, or Hulu Live, as it's often called, has boosted its Hulu Live margins thanks to the fact that more than half the viewing by Hulu Live subscribers occurs on the service's more lucrative on-demand programming, Hulu CEO Randy Freer told Business Insider.

In other words, people may sign up for the live content at first, but end up watching a lot of on-demand programming while they're using the service.

Hulu included its entire on-demand library in the live service to differentiate it from competing streaming services like YouTube TV or PlayStation Vue, which don't offer on demand programming for their entire library of programming.

The percentage of viewing that's on-demand versus live varies by time of year, but the on-demand viewing helps Hulu because it keeps all of the revenue from the advertising sold on on-demand content but only 15% of the ad revenue it gets from the live service. Hulu didn't specify how much margin improvement it's seen.

Hulu Live has both ad-free and ad-supported tiers, so it only sees this ad revenue benefit on the ad-supported tier's VOD content. The company wouldn't say what percentage of Live subscribers take the ad-supported service, but said it's the majority. For context, of Hulu's overall customer base, 60% of customers subscribe to its ad-supported tier versus and 40% subscribe to the ad-free service, Freer said.

As of September 2018, the last time Hulu publicly shared figures, the company said it had more than 1 million subscribers to live. Hulu, YouTube TV, and Sony PlayStation Vue, three of the top five largest vMVPDs by subscribers, don't regularly report these numbers. But Bloomberg reported that Hulu Live and YouTube TV have about three million subscribers today, citing people with knowledge of the matter.

Read more: Industry experts think NBCU may have the winning formula when it comes to its free streaming service

Freer admitted that he'd "love a little more predictability" in the number of Hulu Live subscribers. But subscription habits are beginning to take shape, helping Hulu forecast the ebb and flow of subscribers. A fair number of people subscribe to Hulu Live service in September to watch NFL and college football, then unsubscribe after the Super Bowl, Freer said. Some switch between Hulu Live and Hulu's $5.99-per-month ad-supported VOD service, so Hulu doesn't necessarily lose those customers for good.