Can Hulu rescue TV (For Nothing)?

Online Media Daily reports that Needham & Co. analyst, Laura Martin, was dispensing doses of reality to a packed house at the OMMA Video conference in Los Angeles last week. Referring to Hulu, she observed that it's not especially difficult to take $3 billion worth of product (meaning, programming from Hulu's participating owners such as NBC, ABC and Fox) and give it away successfully online to the delight of millions of users. The question is how to make money from that give-away which, Laura Martin suggested, could take the industry 10 more years to answer.

Actually, we can probably answer the question right now: Hulu won't make money - not, at least, TV kinds of money. Some money will be made, for sure, but not TV kinds of money. So, if that means Hulu will end up squandering the equity of major media brands by offering $3 billion in programming online for free, better cut and run.

Unless Hulu is really saving TV by being free.

Consider that Hulu attracts 38.5 million viewers according to the measurement service, comScore. With such large audience numbers the business instinct is to, 1) charge for content, or 2) insert commercials in front of those 38.5 million viewers as many times as possible. Laura Martin has ideas for both, with content fees for archived programming the most easily accessible. Other options that charge for new or existing content and/or rely on the routine of television commercials are more problematic, and Martin thinks it may take 10 years to successfully introduce those options with the audience.

With regards to advertising, Laura Martin estimates that Hulu inserts four ads per hour on Hulu. That compares to 32 30-second spots that are shown every hour on television for the same programming. It's not clear from the Online Media Daily report if we're meant to think that 32 commercial breaks per hour represents the model for Hulu, but the delta between four commercials an hour and 32 per hour implies plenty of revenue upside if the Hulu people would just get on with selling more of it.

Sadly (or not), they can't. While there is programming capacity online to absorb $3 billion worth of inventory it is highly questionable whether there is commercial capacity to absorb the equivalent of $65 billion in video TV advertising, or even some reasonable fraction thereof.

For one thing, as noted by the Online Media Daily story, the average Hulu viewer spent one hour and 17 minutes watching videos on the site in the month of August, which compares favorably to 3.7 minutes for online video consumption, per viewer, across the rest of the Internet. Elsewhere, Neilsen reported that online video consumption in total had climbed to over three hours. These metrics don't add together, but between the three of them it seems clear that the average amount of time spent consuming online video per month is still not the thing dominating people's schedules.

In contrast, according to the first number I could lay my browser on (which happened to be at CNN.com), in February the Neilsen Company reported television viewing at an all-time high of over 150 hours per viewer, per month which it attributed to the rise in the number of cable channels ("many, many more cable channels") and DVR and TiVo devices.

In other words - as we've heard before - the introduction of more relevant programming combined with technology to avoid commercials is helping sustain and grow TV viewership. From this we could take it that 32 30-second commercials per hour is not the model, even where the model supposedly exists. People don't like commercials. This is partly the reason they like Hulu.

While it may seem counter-intuitive, therefore, the brand equity impact of Hulu on the multi-billion dollar equity value of giant television media franchises may be very positive right now, and may go negative the more its caregivers try and transform Hulu into television by introducing more commercial messages.

As a way around some of these problems and possibilities, one can get the sense from talking to online video enthusiasts that they are waiting for the day when 150 hours of viewing time exists without regard to platform, Internet or television, and where screens are connected and become one. This is the "Eventually-the-Internet-will-become-television" argument in which Internet video strategy simply docks with television and its $65 billion in advertising review. It says that traveling at the vaunted speed of Internet time returns us to the spot from which we left. It's a boring outcome, it ought to seem, for new media, and a rotten one, too, for consumers in a consumer-driven world.

For now, perhaps it's better to think of the three-hours of time per month that viewers online devote to video as brand-reinforcing time. Contrary to the idea that $3 billion in free programming online is destructive, it may be that it is terribly important to driving programming loyalty and repeated use offline, on television, and to supporting a $65 billion business despite the corrosive effects of fragmentation and commercial-skipping technology.

Once again, new media provides for older generations.

 

Follow Jarvis Coffin on Twitter: www.twitter.com/GJC3

Comments

[Eric Penner]

The day Hulu starts charging money they will lose loads and loads of site visitors. Nobody is interested in paying to watch TV shows on the internet when we have access to them from the networks' websites, traditional TV, and on demand through the set-top box.

Currently, the beauty of it is the 'limited' interruptions, and if they adopt the 32-commerc­ials-per-h­our standard, they may as well close up shop.

The TV industry is going to have to take a nice, long look in the mirror and realize that they are not always going to be able to command such high revenues. The money some of the actors make is obscene & the amount that they charge would-be advertisers only serves to fuel it.

At the end of the day, though, it's not as though there aren't sites out there just like Hulu with NO advertising and much, much more content.

Oh, and it's Nielsen. I noticed you've swapped the e and the i for whatever reason.

[beckpod1]

The benefit of customers visiting a companies website...­exploring.­..shopping and ordering product on-line is something that these advertisers should put in the mix...so they should give something back....
It's only costing them a website fee.
No one goes shopping without going on line first!

[mbaty]

Well, you are right. We don't like commercials. We will skip them if we can, channel surf or mute them if we can't. It's unfortunate that Hulu feels it has to add more and more commercials, because for some reason, watching commercials online feels like a terrible inconvenience, partly because it's more difficult to channel surf or mute them. Now, Hulu deserves credit for giving us merciful 15 second commercials and the ability to watch shows whenever we want. But if this becomes just about profit for Hulu--or even if it just appears to be all about profit, Hulu will lose viewership.
That said, watching tv as it airs has become less tolerable. Shows like The View and Oprah sometimes have commercial breaks longer than the segments preceding or following them. Our attention spans are not that long. And we should be watching a tv show with commercial breaks and not a commercial with tv show breaks.
Hulu may end up saving TV, as more and more people realize how inconvenient it is to live your life based upon a programming schedule dictated by a network Ad department. But Hulu will have to play its cards right to keep us interested. Because part of the appeal has been the Free content and the limited ads.

[condor101]

T.V. used to be Free, before cable.
I cancelled my cable 8 years ago and it's been great.
I saved over $5,000 and I have had more time to read and do other activities.
I have watched some movies on hulu. But if hulu starts charging, I will not use the site anymore.
I enjoy renting movies for $1 from redbox.
I also watch news online.

No need to pay exorbitant fees for entertainment.

[userw014]

''In contrast, according to the first number I could lay my browser on (which happened to be at CNN.com), in February the Neilsen Company reported television viewing at an all-time high of over 150 hours per viewer, per month which it attributed to the rise in the number of cable channels ("many, many more cable channels") and DVR and TiVo devices.''

150 HOURS PER MONTH OF EYEBALL TIME? (ROUGHLY) 5 HOURS PER DAY?

WTF? This number doesn't make any sense to me. Even my youngest, addicted to the tube, couldn't pull THAT off.

[Adjective]

Free Hulu is an excellent promotional tool. There are shows that I've discovered on Hulu that I've enjoyed enough so that I'll look for them on TV, despite the commercials (and you're right, the 'Limited Interruptions' is crucial) but might never have known about them otherwise. I also get the feeling from having read comments on posts about the possibility of Hulu shifting to a payment model that such a move would be hugely unpopular.

Here's my suggestion: They leave the free model as it is, but introduce subscriptions where a user can subscribe to individual shows or channels for a fee with less commercials and access to entire seasons. But since it's streamed material, and not downloaded it should cost a lot less than if you were to buy it from iTunes.

[satanlite]

I often watch Hulu. I don't mind the commercials they shove in, but what will kill Hulu is their lack of content.

There must be billions of old shows they could get for cheap, yet they seem to be concentrating on presenting mostly contemporary programming. That's what will kill them. They shouldn't underestimate their unique ability to acquire niche markets of odd oldies and the less than popular contributions of television and even radio spanning the last 40 years. If they continue on acquiring the newest poopoo and pop pablum they'll flash up and eventually fall aside.

[pdog]

Hulu should start renting new movies online. This is probably one of the best ideas for them to make money yet keep all the free tv and movies we have come to love about Hulu.