Hulu: Soon To Be Obsolete?

Jun 23, 2011  •  Post A Comment

Two excellent pieces today. Our first story asks "Hulu: Soon to be Obsolete?" Then we have an item about Facebook on track to becoming the online site that will be No.1 in online display ads, overtaking Yahoo.

By Brian Steinberg
Advertising Age

Hulu gets some portion of its traffic by streaming episodes of older TV shows — think "Hill Street Blues," "21 Jump Street" and "The Greatest American Hero" — that inevitably jumped the shark. Is it crazy to think the popular video-sharing site is about to do the same?

Reports surfacing recently suggest Hulu — backed by Walt Disney Co., Comcast’s NBC Universal, News Corp. and Providence Equity Partners — has been approached by a potential buyer and was mulling its options. If all the backers thought Hulu’s future was secure and guaranteed, the suitor would have been spurned outright and the press would have nothing upon which to feed. Disclosure of the approach begs the question of whether Big Media, which gave Hulu a lift by stamping it with its glitzy imprimatur, now feels the site is heading towards obsolescence.

It’s true, viewers still tune in to Hulu, and the company said on its blog earlier this year that it expected to generate $500 million in total revenue in 2011, up from $263 million in 2010 and $108 million in 2009. And Providence, which injected about $100 million into Hulu in 2007, is said to be pleased with the company’s growth and prospects, according to a person familiar with the situation.

A person familiar with one of Hulu’s media owners said the site has exceeded initial financial expectations by a wide margin. While some sort of "liquidity event" has long been built into plans for Hulu, owing to Providence’s involvement, this person said, the backers feel positively about the site whether it continues under their ownership or under a new owner that meets the right criteria.

But those Hulu figures don’t yet describe a business on par with the main ones controlled by the company’s media owners. Hulu’s projected 2011 revenue doesn’t come close to the approximately $4.49 billion in ad revenue alone that Fox took in during 2010, according to Kantar Media — and that with roughly just 14 hours of prime-time programming during the week. Even the comparatively paltry CW network secured about $613 million last year from a mere 10 hours or so of prime time per week.

Hulu CEO Jason Kilar said in April that "the content community will earn approximately $300 million from Hulu over the course of 2011." Consider that money has to be split any number of ways between various programming providers; the sums may not seem so robust to individual media firms.

Hands down, Hulu is an innovative place that should be remembered for the strides it has taken in trying to make video advertising more effective. The site shows significantly fewer ads than the TV networks, even allowing viewers on occasion to choose the commercial (from a limited selection) they might most like to see. The site’s spartan design, the short pre-roll videos and other deliberate choices all contribute to a top-notch viewing experience.

But that might not, as a matter of fact, mesh completely with its owners’ agendas. Mr. Kilar in February articulated a vision in which online viewing is never required to carry the same number of ads that populate traditional TV. News Corp. however, has been pushing the company to run more advertising, at least in some cases. Fox has also used some portion of Hulu inventory — the network receives a slice of it to sell every year — as "make goods" for its TV clients. That hardly suggests Fox sees the site’s advertising as blue-ribbon stuff.

Meantime, CBS, which never joined the Hulu parade, has talked up its recent content deal with Netflix — and its intention to sell its TV-show content to any other distributors that might like it. "The more, the merrier," CBS CEO Leslie Moonves said during a conference call with analysts earlier this year, citing Amazon and Echostar, which has agreed to buy up the assets of the Blockbuster movie-rental operation, as potential customers down the road. He has suggested revenue from such pacts could amount to "hundreds of millions of dollars."

And CBS can’t be alone in this ambition. All content producers — from major ones such as Disney and Comcast on down to the smallest production house — want as many options as possible for making money in the so-called "video aftermarket."

But would Hulu owners Disney, Comcast and News Corp. feel hampered in similar deal-making? Crafting an agreement with Amazon, for example, could well undermine the power of the companies’ content on Hulu.

And then there’s Comcast’s unique situation, barred from direct involvement in Hulu affairs after the government allowed it to assume majority ownership of NBC Universal. That can’t make Hulu’s fate much more certain.

There’s also the question of whether Hulu has been leapfrogged by others. Netflix says it has more than 23 million paying subscribers who can choose to access its vast library of content almost at will, depending on available technology. Hulu’s Hulu Plus subscriber service is expected to exceed 1 million paying subscribers by the end of 2011, Mr. Kilar said in an April blog posting.

In a worst-case scenario for Hulu, the media world will remember it for the way it upped the ante on video streamed online. Google’s YouTube, by comparison, still looks like it was put together by the pirate-radio enthusiast portrayed by Christian Slater in "Pump Up the Volume." And Hulu had that really funny Alec Baldwin commercial in the 2009 Super Bowl.

But the site may not become the dominant force in online programming. There are too many other potential rivals in this nascent sector — pools of potential viewers and money with which Big Media will want to wet its beak, rather than betting everything on one site.#

Item number 2:

Report Says Facebook Will Be No. 1 in Online Display Ads This Year, Overtaking Yahoo

Social Network’s $2.19 Billion Puts It at Top of the Digital Heap, Leaping Google, Yahoo — but It’s Still a Bit Player When Compared to TV

By Edmund Lee
Advertisng Age

Facebook doesn’t really have to try to become the biggest player in digital media; it simply is.

The social network is estimated to book $2.19 billion in ad revenue in the U.S. this year, all of it classified as display, according to the latest eMarketer research. That sum takes on new significance now that Yahoo and Google are estimated to make less in display than predicted. The firm projects Google will make $1.15 billion in display ads for 2011, down 10% from an earlier estimate, while Yahoo is expected to bring in $1.62 billion from banner ads, down less than 2% from an earlier analysis.

While mighty TV still commands the biggest slice of the ad business at 16%, compared to the internet’s 7%, according to ZenithOptimedia, more advertisers are making big branding bets online, an arena that has long been dominated by Google search and the direct-marketing companies that that kind of advertising attracts. In 2010, display advertising, which includes video, grew 23% — faster than search — according to the IAB.

Recognizing that challenge, Google has made aggressive moves into this area, bolstering its advertising offerings on YouTube and recently paying $390 million for Admeld, a startup that helps publishers sell premium advertising. Yahoo and AOL have been offering bigger ad units that mimic the distracting nature of TV ads with videos that command the entire screen.

But Facebook isn’t simply benefiting from that trend — it appears to be winning the front to claim higher-value ad dollars online. "More marketers are putting money into Facebook, as opposed to general display," eMarketer principal analyst David Hallerman said.
Simply put: as more companies continue to build out their Facebook pages, they’re also paying to advertise on the site to drive users to those pages.

Facebook’s revenue dominance has become a closely watched milestone by the investor community, many of whom are eager to see the company go on the public market, with recent reports claiming it could make an offering as early as next year. An important aspect to understanding Facebook’s revenue has to do with how much its ad-buying system is like Google’s. Much the way that Google came to dominate search advertising with its open-bidding platform, Facebook has done the same with display advertising through a self-serve system that allows anyone to bid to place an ad along its right banner. But that system tends to appeal to the so-called "long tail" of medium- and small-sized businesses.

Facebook has been looking to attract larger companies into its mix of advertisers, according to eMarketer analyst Debra Aho Williamson. "They’re definitely making a more concerted effort to go after TV budgets," she said. "But the challenge for bigger brands and agencies is that Facebook display advertising doesn’t look like other display advertising." Unlike sites such as Yahoo or AOL, advertisers can’t at the moment publish video or large units that take over a big part of the page on Facebook. "They have to show that the viral nature of advertising on the site is worth it," Ms. Williamson added.

The Palo Alto, Calif.-based company, which is closing in on 700 million registered users, has recently reached a point of maturity in its advertising ecosystem, which has largely been fueled by a host of third-party companies plugging into its advertising software. It has certified 22 companies, such as Kenshoo, Adparlor and Blinq, to sell Facebook advertising to agencies and marketers, and while there are definite exceptions, most of the advertisers fall into the smaller-business range.

Advertising on Facebook "serves a different purpose than advertising on a place like Yahoo where you can buy a takeover of the home page or a channel sponsorship," said Joanna O’Connell, a senior analyst at Forrester Research. Ms. O’Connell further pointed out that advertisers aren’t necessarily buying one in place of the other.

The latest numbers on Facebook contrast a recent study from IDC saying that Google made the most money in display advertising for the first quarter of this year with $396 million, compared with Yahoo’s $330 million and Facebook’s $238 million.

One Comment

  1. I have faith in Hulu Plus. It isn’t as big Netflix but when I am looking for something to watch I always check Hulu first and Netflix second. If Hulu went away I would have to cobble together a bunch of links to network sites that offer free content. I have to do this for Elementary, the only CBS show I watch. Lots has been made about CBS’s grip on the 18-24 viewers but they can’t hold the grip for long with the annoying website they use to show their products online. Their APP is a bit better but it is like they purposely make the online viewing experience so annoying that people would rather watch their shows live on tv. If Hulu has something to fear it will likely be Aereo. The moment it is available I will be purchasing it. 8 bucks for Hulu, Netflix, and Aereo each is still better than giving money to Comcast and the day HBO breaks down and offers HBO GO to noncable subscribers is the day I may add them as well. That day is coming too.

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