Even As It Sets New Usage Highs, Is Hulu Headed Towards Irrelevancy?

Categories: Featured,Internet TV

Written By

November 27th, 2009

Hulu-Bones

Bill posted earlier somewhat chiding Hulu CEO Jason Kilar for talking like he's his own man rather than ultimately accountable to ABC, CBS and NBC.  Jason doesn't want more ads.

I won't chide Jason for the desire.  From a product perspective, Hulu is a much, much better product than you would've gotten if you'd have let NBC and FOX (and now ABC) design it to begin with.  And having fewer ads definitely makes for a much better customer experience.  But barring some amazing shift, it's not going to work for Hulu.  Having a great product that customers love doesn't matter much if you can't make much money from it.  Especially if its investors don't like its direction or worse, feel threatened by its existence.

The networks want more commercials for online and On Demand viewing, not less.

As Bill noted, the TV networks (both broadcast and cable) are anxious for Nielsen to roll out its "TV Everywhere" measurement where they will be able to include the same national ads that ran on TV online and on On Demand services and be paid for the viewership of those commercials under the same C3 measurement currently existing for TV (live commercial plus 3 days worth of  DVR viewing).

When Nielsen finally rolls this out, what you can count on is the same national ads (roughly 16 minutes worth for shows that are scheduled for one hour).  This is a huge increase over what currently happens online (and not just for Hulu).

What does "TV Everywhere" measurement mean for Hulu?

Today, nothing.  Nielsen isn't planning on rolling the new measurement out until 2011.  But pressure is mounting, particularly from some cable networks who have their big season in the summer to get it rolled out by summer 2010.

It will be interesting to see what Hulu will do.   If   Jason Kilar says "No, I'm not airing videos with 15 minutes of commercials in them on Hulu," you can pretty much count on no new episodes of TV shows going up on Hulu for about four days.

If Hulu agrees, it will be interesting to see how Hulu would even be paid for showing TV shows loaded with the same national ads they aired on TV with since Hulu would've played no role in selling those ads.

Hulu Needs New Episodes of TV Shows To Continue Growing

Advertising Age's Michael Learmonth did a write-up on Hulu's recent traffic growth and how important popular TV shows (plus the addition of ABC shows) are to that growth.  But the most chilling part of that write-up to me (at least if I am Kilar) isn't the quote Bill used in his earlier post about how Kilar doesn't plan to add more ads, but this analysis from Learmonth:

It's also an indication that increasingly, Hulu is driven by the network hits -- and not the long tail of library shows like "A-Team" or "The Lone Ranger." The emerging rule of thumb: the more popular network TV fare on the service, the more viewing at Hulu.

In a world where the long tail of library shows was the primary driver of traffic for Hulu, Kilar would have an easier time setting the agenda.  But Kilar doesn't live in that world.  For now, all Kilar can do is cite what a small percentage of the overall library the new shows are and hope nobody notices that the lion's share of the library isn't responsible for the lion's share of the traffic.  But, sadly for Kilar, it's too late.  People are already noticing.

Hulu Can't Make Up Revenue Differences With High Premiums On Fewer Ads

Last TV season, FOX tried an experiment it called "remote free" where it ran only 10 minutes of national ads instead of 16 minutes for the heavily DVRd (at least on a percentage basis) Fringe and Dollhouse.  The experiment did achieve its desired goal of having fewer people skip ads -- fewer people changed the channel when commercials came on, and fewer people fast-forwarded if they were watching on their DVRs.

But FOX scrapped the experiment this year for a very good reason.  It couldn't sell the remaining 10 minutes at high enough premiums to offset the missing six minutes.  Is that a solvable problem for FOX and the broadcast nets?  Perhaps.   But that's going from about 16 minutes to about 10 minutes.   Show's that are scheduled for an hour on TV typically have only 3.5 minutes of commercials on Hulu, it would need to triple to get to even 10 minutes.  If FOX couldn't figure out how to offset 6 minutes of fewer commercials with premiums, I don't see how Hulu can hope to offset 12 minutes.

Perhaps Hulu Isn't Headed To The Deadpool, But It's Heading Towards Being Less Relevant.

For now, the real money for TV advertising is with the ads that air on TV.  That's why the networks are so keen on Nielsen counting online viewing of the same ads that ran on TV within 3 days.

Even if Hulu DOES show those same ads for the 3 days after the shows aired, it added little to no value in the ad sales and so is less relevant in that world.  If they don't show the ads with the national commercial loads, more people will watch directly from the network's web sites (I know some people will say that they will wait 3 days rather than use ABC.com's player, but many people wouldn't) and Hulu will be less relevant.

Hulu would still have value as a distribution hub, but the question is whether that's the value the networks participating hoped to extract from it.  Hulu can add more commercials,  perhaps even at a premium, for the long tail shows, but if the long tail isn't a significant portion of its traffic, that isn't going to matter much.

 
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