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Summary:

Online video represents only a small piece of the total advertising pie, but the growth in streaming ad revenue is becoming more of a threat…

Hulu

Online video represents only a small piece of the total advertising pie, but the growth in streaming ad revenue is becoming more of a threat to the broadcast medium that supplies most of the high CPM content. Hulu is a case in point, as Mediaweek and paidContent sources point out the ways the site’s ad sales team often undercuts the network media buys for both streaming and broadcast. Sources tell paidContent that some of Hulu’s broadcaster backers, which include NBC Universal (NYSE: GE), ABC and Fox, are experiencing growing frustration after hearing from media buyers that the video site’s ad sales often offer discounts on ad sales. At this point at least, paidContent is told, the situation is more of an annoyance for networks, than serious damage, since the dollar amounts remain comparatively miniscule.

Media buyers tell paidContent that it is fairly easy to exploit the differences between the broadcasters’ TV inventory prices and Hulu. For one thing, media buyers, who rely on fees tied to the amount they spend, need greater incentives to sell online spots versus broadcast TV, which is often aligned with online as part of a cross-platform sale. So the smallest break in what agencies pay for online inventory on Hulu or other video sites can make a big difference cumulatively. For Hulu, which is under increasing pressure to prove its value as a business in its own right, the battle over ad revenues has become more acute as its competes for ad revenue.

Mediaweek suggests that the possible purchase of NBCU by Comcast (NSDQ: CMCSA) is a big distraction among Hulu’s other major broadcast backers, ABC and News Corp (NYSE: NWS). But sources tell paidContent that there hasn’t been too much focus on the Comcast-NBCU tie-up, saying it’s too early to tell what impact that combo would have.

The current tension mostly has to do with advertisers restraining their broadcast ad spend. As a result, the broadcast ad sales teams are becoming more sensitive about the conflict between the TV and related online avails and Hulu’s inventory. “The spending on Hulu versus the networks is still very small,” one network exec told us. “But the undercutting of broadcast CPMs is something we’ve all worried about. It’s been more pronounced during the past few months and it’s something that Hulu has not addressed.”

One media buyer confirmed the networks’ concerns. But this source also said that that it reflects the difficulties at the networks, as opposed to Hulu’s challenge. “Hulu doesn’t represent a threat to the networks today, but the confrontation over online video is starting to seem more real as advertisers explore other options aside from the broadcast model,” the media buyer said. Part of it reflects confusion on the part of Hulu’s ad sales team as to what they can sell and what they can’t.

In many cases, Hulu will promise a media buyer a spot, only to come back to the media agency and say it was unavailable. Hulu will then offer a discount to make up for the disconnect. “In the end, online video, even from Hulu, is additive,” the media buyer said. “So if an agency has to go back to the advertiser, it has to offer something extra to make up for reneging on what was thought to be a done deal.”

  1. Jason Potteiger Monday, November 16, 2009

    "As a result, the broadcast ad sales teams are becoming more sensitive about the conflict between the TV and related online avails and Hulu’s inventory."

    A big issue here is media companies framing content existing online and off as a “conflict.” From a consumer point of view, these are two very different channels. Hulu erecting a pay wall will likely just lead to less people watching Hulu, not more people watching TV. Friends of mine are planning to buy a DVR now that Hulu may charge–that doesn't sound like the outcome the pay-for-content advocates are going for. But it is the reality. Young people are Hulu's largest demographic, and they have college loans, rent to think about along with low paying jobs. On top of cable and internet, how much more money can they really spend on entertainment? Bottom line, they probably won't pay for Hulu.

    I wrote a short piece on this topic if you’re interested in reading more: http://www.thenextgreatgeneration.com/2009/11/16/hulu-gonna-buy/

    Jason

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