Hulu: Don’t Worry About Us, We’re Doing Just Fine, Thanks

22 Comments

After two years of silence about its business, Hulu has finally issued some details about its financials, including some major revenue numbers and — surprise — profitability. For those who missed it, Hulu told the world last night that it generated more than $100 million in revenues last year, and that it’s on pace to beat that in the first half of 2010. Furthermore, the online video company said that it had been profitable over the last two quarters.

Hulu has grown up fast since launching publicly in October 2007, and has solidified its spot as the number 2 video site in the U.S. with more than a billion video streams a month. While its revenue numbers are pretty huge for an online video site that is less more than 18 months old, one should keep in mind that Hulu’s actual cut is much lower, considering it shares somewhere between 50 percent and 70 percent of its ad sales with content partners. Add in the cost of delivering all those high-quality videos, and some have questioned the viability of Hulu’s business model.

Which could be why, after years of remaining silent on the topic, Hulu felt it needed to answer its critics by releasing financial details. Hulu is coming under pressure from content partners and investors NBC Universal (s GE), Fox Broadcasting (s NWS) and Disney (s DIS), all of which have a vested interest in seeing the site succeed. A recent article in AdAge, for instance, quoted network execs claiming that Hulu’s ad-supported business model was not economically feasible, and that it would soon be forced to move to a subscription model. The company’s financial disclosures might have been aimed at quieting those concerns and convincing its partners that its current freemium model works.

There could be other reasons — Hulu might have felt the need to distance itself from other online video sites, like Joost and Veoh, that have run asunder over the past 12 months. Maybe it felt the need to prove that online video, if done right, might not be the money pit that some other companies have made it out to be.

Or it could be signaling to content providers that, now that it’s profitable, it’s not going to overpay for their video content. In other words, Hulu might be using its scale and profitability as a bargaining tactic as it heads into renegotiations with partners, kind of as a way of saying, “We need you for content less than you need us for distribution.” That could come in handy as more content partners look to re-up their deals with Hulu.

Viacom (s VIA), for instance, recently pulled The Daily Show and Colbert Report videos from Hulu, saying that it wasn’t happy with the revenue that those properties were bringing in on the online video site. But Hulu continues to plod along, and doesn’t seem to be missing the Comedy Central clips that much.

Whatever the reason, Hulu’s profitability bodes well for the online video industry as a whole. With YouTube (s GOOG) also expected to turn a profit this year, 2010 could finally become the the year that online video stops being an experiment for publishers and starts being a viable business.

Related content on GigaOM Pro: The iPad: Cable TV For Publishers? (subscription required)

22 Comments

David

@Aaron, the problem is the comparison with the broadcast and cable tv networks that own all of hulu’s content & who make an incredible amount of money… TV is a fantastic business because of how well it scales; there are few marginal costs

For ad supported television networks, the most important business metric is revenue per viewer hour, and TV KILLS online here; it’s not even close. So either you raise the ad load on Hulu and potentially scare away viewers, or you charge a subscription fee.

Remember, “economically feasible” as per ad age article means that executives must earn seven figure salaries. There’s no getting out of that, sadly.

Aaron

Yah I was saying they aren’t doing “just fine”. “Just fine” means they have a viable business model and its just a matter of scaling it. They aren’t coming close to selling half their inventory from what i’ve heard.

Aaron

If they are doing just fine then why all this talk about subscription models? Google is doing just fine and they don’t talk about a subscription model. Why add complexity to a business if it’s doing just fine. $100M in revenue? what’s the margin on that 100M?

Comments are closed.