Hulu's Days Are Numbered - Jonathan Bokor - MediaBizBloggers

Comcast39s recently announced acquisition of NBCU has many pundits questioning where online video and particularly Hulu fit into the new entity39s plans Comcast brass have said they see Hulu as a logical complement to TV Everywhere with broadcast shows made available free on Hulu and cable shows available behind the authentication wall of TV Everywhere Whether that is Comcast39s true intention or merely a feint to appease regulators doesn39t really matter All signs point to Hulu having a very difficult time carving out a sustainable ie profitable niche for itself My guess is that it is either toast or acquisition bait within the next 24 to 36 monthsHulu39s US video views rose to 856 million in October representing a 47 jump over its September total of 583 million While that39s an impressive achievement and validates Hulu39s ability to deliver a great user experience it doesn39t address the key factor in evaluating its future which is its ability to monetize those views effectively Although it doesn39t release sales figures it appears that Hulu39s ad sales numbers aren39t keeping pace with its viewing numbers which means that its losses are probably increasing And since the average visit is only around 6 minutes and Hulu runs fewer ads per hour than traditional TV it is difficult to sell enough ads to turn a profitThat problem might be solved if Hulu could sell its ads at sufficiently premium prices The lack of clutter achieved by running fewer ads per hour and the resulting scarcity of ad inventory has typically resulted in premium CPMs But by nearly doubling its monthly views Hulu now has significantly more inventory to sell which will lead to downward pressure on CPMs And if it can39t get a sufficient CPM premium it will have to increase the number of ads per hour to make up for it which in turn will create even more inventory further reinforcing the downward pressure on pricingAny reduction in Hulu39s CPM premium will exacerbate another emerging problem amp8211 conflict between Hulu39s ad sales team and the ad sales teams of its constituent content partners Some tension has already been reported in the press with network ad salespeople complaining that Hulu is undermining the pricing for the network39s traditional TV ads That is disturbing because online video has typically been able to garner higher CPMs than traditional TV particularly due to its ability to target specific demographic groups which TV has a hard time doing If Hulu can39t maintain premium prices for its ads then network TV sales groups who already feel they are better at monetizing online video on their own sites ie NBCcom and ABCcom will increasingly lobby their management to bring all online video sales inhouseThis will push Hulu towards some sort of pay model which Jason Kilar the company39s CEO has indicated is under consideration But what exactly would the offering consist of Payperepisode Apple and Amazon have already shown that39s a decent little business but no world beater Subscription model Since most of the content on Hulu is already free on broadcast TV how much would most users pay to get it on demand especially when many cable operators are providing quite a bit of it on free VOD So that doesn39t appear to be the road to large profits either Subscription for library content That seems promising but Netflix is already there and they give you DVD39s by mail to boot for as little as 899 a month Realistically Hulu doesn39t seem to bring anything unique to the table in terms of a pay model and it39s difficult to imagine how it will make such a transition without offending Comcast which isn39t likely to be in favor of setting up a cheap subscription alternative to cableWhich brings up the issue of holding on to all three of its principal content providers Although its deals with Disney News Corp and NBCU provide for some exclusivity for a period of time those contracts will eventually come up for renewal If Hulu is in fact losing money it39s reasonable to assume that one of the partners may not be willing to continue to fund ongoing losses Alternatively as the broadcast networks move toward seeking subscriber fees from cable operators see my prior piece on this topic they may have to agree to put their online content exclusively into TV Everywhere Losing even one of the broadcast networks would be a damaging blow since other than its user interface which is admittedly fantastic Hulu39s unmatched ability to aggregate content from 3 out of 4 of the broadcast networks is its biggest selling pointThe company certainly has a talented team of people and they may figure out a way to develop a powerful revenue stream and begin churning out consistent profits If not it39s only a matter of time before the broadcast networks begin either pulling their content back into their own sites or putting it exclusively into TV Everywhere in exchange for subscriber fees from cable satellite and telco operators At that point Hulu will face either shut down or acquisition perhaps by an MSO looking to add a little sizzle to their TV Everywhere offeringJonathan Bokor is a consultant specializing in monetization strategies and business development for both digital media and traditional media companies Jonathan can be reached at jbokoryahoocompampgtRead all Jonathan39s MediaBizBloggers commentaries at A Suit With a View MediaBizBloggersamp160Follow our Twitter updates MediaBizBlogger

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