The US online streaming service Hulu Plus is on course to reach a million paying subscribers, wrote CEO Jason Kilar on his Hulu blog, “to our knowledge the fastest start of any online video subscription service.”
Kilar expects Hulu Plus to approach half a billion dollars in total revenues (advertising and subscription combined) in 2011, up from $263 million (€193m) in 2010, itself an increase of $108 million on 2009. By the autumn of 2001, “we will have a revenue run rate north of $200 million.”
In his blog, Kilar also writes that experience has taught the company three things on what consumers want from their television experience:
1) Traditional TV has too many ads. Users have demonstrated that they will go to great lengths to avoid the advertising load that traditional TV places upon them. Setting aside sports and other live event programming, consumers are increasingly moving to on-demand viewing, in part because of the lighter ad load (achieved via ad-skipping DVRs, traditional video on demand systems, and/or online viewing).
2) Consumers want TV to be more convenient for them. People want programmes to start at a time that is convenient for their schedules, not at a time dictated to them. Consumption of original TV episodes will eventually mirror theatrical movie attendance: big opening Friday nights, but more consumption will be in the days and weeks afterward. Consumers also want the freedom to be able to watch TV on whatever screen is most convenient for them.
3) Consumers are demonstrating that they are the greatest marketing force a good television show or movie could ever have, given the powerful social media tools at consumers’ disposal. Consumers now also have the power to immediately tank a bad series, given how fast and broad consumer sentiment is disseminated. This is nothing short of a game-changer for content creators, owners, and distributors.
Based on metrics from Nielsen/IAG, Hulu claims its video advertising service is roughly 2x as effective as traditional TV video advertising services. “Our point of view since 2007 has been that if we become the most effective video advertising service, then we could earn higher advertising revenues (per hour of content consumed) than anyone else’s ad business.”
The chart on this page compares how much revenue Hulu currently generates from advertising per half-hour TV episode versus the advertising revenue that traditional distribution generates.
So, what will content owners do? Wishful thinking amongst broadcasters seems to be that once content owners find out they don’t make enough revenues from OTT services, they will withdraw their programmes and stick with “the old model”. Writes Kilar: “Content owners have been very clear: they as a group need to make a fair return on their significant investment in creating content. Content owners will license their best content in the best windows to those distributors that pay the most on a per-user per-month basis. Content owners will bundle their content to the degree customers will respond, simply because it is in the content owners’ economic interest to do so. If enough customers refuse to purchase their bundles, then the bundles will either be reduced in price/scope (possible) or dismantled (far less likely). Customers will ultimately make the decisions here.”
“The internet has made it possible for new entrants to innovate quickly and materially. Consumers will have more choice and convenience going forward. This competition will drive prices and margins down in pay TV distribution. A greater percentage of the economic pie will flow back to content owners and creators.”
Interesting to note is the fact that Kilar explains all this on the website of a service, Hulu and Hulu Plus, that is owned by three owners of traditional networks – the ones that stand to lose the most should this scenario come true – NBC Universal (NBC), News Corp. (Fox) and Disney (ABC). Hulu also announced a major deal with Viacom (CBS), to distribute a wide choice of programmes from MTV, Comedy Central, VH1, TV Land, BET and other Viacom channel brands.
