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Conversation: Hulu CEO on Netflix, Hulu Plus and Broadband

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Hulu CEO Jason Kilar has reason to feel pretty pleased. His three-year-old Los Angeles–based company that was given no chance to succeed (by me) has managed to not only become super successful but has also become one of the main stewards of the online video industry. And the company has weathered turbulent times and nervous media companies to finally launch a paid version of its service, Hulu Plus, last week.

“It has been an amazing response, many times the internal projections for beta requests and app store downloads,” Kilar said in an interview about Hulu Plus yesterday.

Devices R Hulu

Hulu Plus is a plan long in the making to take the service beyond the browser into connected devices. Later this month, the company will introduce a version of the service for Sony Playstation 3 (s SNE) and will follow that with support for Samsung’s connected televisions and Blue-ray players, Sony’s Bravia range of televisions and the XBox.

“We are big believers that every device that is connected is an opportunity for us?,” said Kilar. “Premium content should be delivered to these devices?.”

This is a page out of Netflix’s strategy. Just as the DVD-company has figured out that it eventually needs to move away from being prisoner to one screen (television), Kilar knows that Hulu’s future looks at opportunities beyond the web browser. (YouTube, however, is taking a different approach; creating different web browser versions that will work on a variety of devices.)

Hulu, Kilar said, had been working on the Hulu Plus offering since March 2009. The reason it took so long is because the company had to not only overcome technical problems but also work with its partners. Jason’s business philosophy it seems is to learn from experience and grow in a methodical manner. “Everything takes time,” he quipped, pointing to the fact that, while Hulu started with only two content partners, it now has 226 content partners.

While Hulu Plus has been critically acclaimed, the service has come under criticism for charging a $9.99 monthly subscription fee for its ad-supported service. Kilar said that the price was set by Hulu after talking to potential customers. However, if in the future its customers want a higher-priced ad-version of the service, Hulu may offer such a super-premium service. ?

Hulu vs Netflix

Hulu Plus has drawn comparisons with Netflix and its subscription model, which offers a somewhat similar library of streaming content. Kilar dismissed all that talk, pointing to the old television world which has many different business models. Just as you have subscription-only HBO, ad-only broadcast networks and hybrid models such as TNT and TBS, there will be “a diversity of business models” that will be decided upon by content owners and viewers, he said. “There isn’t going to be one single model that will win it all,” he said.

“The living room is too big an opportunity and will attract many competitors. At a macro level, anyone who is in the business of delivering premium content is looking at Hulu as competition, and the list can be very long,” he said.

Kilar argued that the Hulu Plus product — aggregated episodes from current seasons of broadcast shows — is, in fact, differentiated. (Hulu is in effect cutting off the DVD business at the knees by offering the equivalent of DVD box sets before they ever hit the stores.)

“We are the only ones with that service in the market,” Kilar argued, saying that he takes special care as a startup to identify and focus on un-met needs. (Related from GigaOM Pro: Three Reasons Hulu Plus is No Threat to Netflix.)

When I asked Kilar about Apple’s (s aapl) rumored rental video streaming service and how it might put him at a disadvantage, he pointed to his corporate alma mater, Amazon (s amzn), and its Kindle. Just as the Kindle will survive as a standalone product and an app (aka service) on the iPad, he sees no reason why Hulu can’t live on the iPad and other Apple devices.

“Service providers like us and Netflix are partners to Apple and its iPad,” he said. “We only make the iPad more useful.”

Managing Friendships

So what about Hulu eating into the value proposition of cable companies who are also content aggregators like him?

“The way I see it, service providers are in three businesses — telecom, broadband and paid television,” Kilar said. “In the short term, Hulu will help their business as it is the biggest driver of broadband, a very higher margin business for MSOs.” Even if Hulu Plus is a full alternative to TV, it’s a supplemental service that needs cable companies’ broadband.

But we all know when it comes to large corporations, including cable operators, logic typically goes out the window. I am sure it will be interesting to see how Kilar manages Comcast (s CCW), the largest cable company in the U.S., which is in the process of buying NBC (s NBC), a major stakeholder in Hulu. Of course, Kilar’s job description is basically that of a diplomat. The same goes for content owners: “When you put billions of dollars in making content, it is responsible to seek return on the investment,” Kilar said, when I harangued him about his tenuous relationship with corporate parent News Corp (s NWS) and other partners.

“You need to walk in the shoes of your customers to delight them,” Kilar said, adding that viewers, content creators and advertisers are all his customers. It’s good advice that I bet all startups can apply to their business.

Photo by Rodrigo Sepulveda courtesy of DLD Conference via Flickr??

12 Responses to “Conversation: Hulu CEO on Netflix, Hulu Plus and Broadband”

  1. Rahul

    Best quote from the 2007 article you wrote:
    “We had reported NewCo’s fund raising efforts a few months back, wondering what a prospective investor would see in this new online video destination, whose chances of dislodging YouTube from the top spot are about as high as Tampa Bay Devil Rays winning the American League Championship.”

    • Well how wrong was I on both fronts — Rays won the championship and Hulu is successful. Well, hazards of being a professional Internet pontificator — folks will remind you constantly of your mistake. I ADMIT I WAS WRONG :-)

  2. “However, if in the future its customers want a higher-priced ad-version of the service, Hulu may offer such a super-premium service.”

    I’m guessing you meant “higher-priced ad-free version of the service”?

    Between the ads, the cost, and the limited content, Hulu Plus doesn’t seem very compelling when stacked up against Netflix’s $8.99 plan. TV content is their only real advantage, and it’s not by a lot.

  3. Joseph T Hatfield

    The app is not getting good reviews in the Apple app store (7199 ratings averaging less than 1.5 stars). From the comments I’ve read, it seems like people are not happy paying $9.99 for an ad-based service currently available for free on their PC (regardless of what other features the app might have).

    • Agreed… I think it is a question I asked him and he felt that there is going to be takers at that price.

      Who knows — the service isn’t live just yet. To be honest, I basically dismissed them earlier and was 100% wrong.

      I am not sure I am going to dismiss them without seeing the product in the market place :-)

      • Joseph T Hatfield

        That’s a good point, Om; The Hulu Plus service is not out of beta yet. I’m hoping they listen to the reviews and use those comments to help improve the service. It seems like Hulu have so far managed to garner enormous good will from their previous efforts (I don’t know any Hulu user who doesn’t love their web app). I think there is a lot of potential there, I just hope they are able to take advantage of that.

      • Brent F

        There are a couple of issues that I think people aren’t considering, namely:
        * Net Neutrality… AT&T and other providers want third parties to pay for all of this bandwidth usage. (Of course, is AT&T going to pay cable companies for bandwidth used by its femtocells used in peoples’ homes?)
        * With bandwidth caps being imposed upon broadband users (Cox, Charter, etc.), I believe that cable companies (and AT&T) will be forcing people to use their services via the IPTV spectrum (with no caps) vs. accessing same content (with usage caps) for broadband-originated content… Thus, bandwidth caps being forced upon users is going to be a limiting factor… maybe, not today, or tomorrow. But, it will happen. That’s where having ads being downloaded to PCs will causing additional #’s being used against a broadband customer’s usage caps.
        * I can see that there will be more fragmentation of the third parties’ service offerings, where they want to have special a la carte pricing for content… (think of ESPN’s attempts at offering subscription plans for its content back in mid 90’s… and ESPN’s failed venture with Verizon (VCast ?) for sports-related content. A la carte pricing will ultimately not be as economical for a horde of content being available, as offered by ISPs.
        * When cable companies (and even satellite providers) continually increase their rates, there will be some ultimate point where many customers will just unplug and dismiss the hype. People will start to seek alternatives for their entertainment fixes. Look at phone companies that have raised their prices (and obscure fees)… more and more people decided to cut the wire. As an example, when I bought my current home 3 years ago, I decided not to get phone service through Verizon, because I didn’t really see my family using the phone (not with IM, email, etc. being available)… plus, why should I pay $30/month for phone service which wasn’t going to be used anyway? We have cell phones, unlimited family text plans, and Ooma for VOIP through my broadband connection. I did have Vonage, but I don’t feel that amount I pay per year was worth more to me than what Ooma provided.
        With my monthly cable tv/internet bill running $140+ for 2 HD DVRs and 10 meg down/1 meg up ‘net connection, I am looking at alternatives to the cable tv offerings. I’m seriously considering the Boxee Box, if it ever comes to market, and other boxes to get my “fix” of media. For the digital and compressed HD channels I am offered by the cable tv company, I only watch about 15 channels during the course of a month. So, all of the music channels, etc. that are offered really aren’t useful to me.

        Yes, I know… YMMV … but I think there will be some sort of contraction by consumers about what is important to them. Hulu, while providing convenience of content via ‘net, needs to reconsider the ads they force upon their customers who subscribe to the Hulu Plus offering.

    • MonkeyReviewers

      Who is the demographic leaving these reviews? By their words it seems to be the same nitwits who leave those idiotic comments on youtube.

      Also how many of those idiots flagrantly steal/download content for free and have been doing so for years? Why hasnt Hollywood gone and sued these thieves and monkeys? They obviously think everything should be free, even when they put a huge value on the content they consume.

      The most idiotic comments are this has ads. Why am i going to pay $10 a month for ads. Umm dont these idiots understand that cable TV costs a ton more and has a ton more ads? I use to download a ton myself, but as I grew older (in my 30s) I realize I was just being a thief! Idiots need to grow up and pay for the content they value!

      • Angry Zebra

        I’m one of those idiots you mentioned several times that feels I shouldn’t have to pay to see more ads. I don’t do that on Netflix and paying $60/month to see more ads than on broadcast is one of the reasons I cut the cable cord at the beginning of the year.

        I don’t believe paying $12.99/month to Netflix and getting streams of much of the content I want makes me an idiot.

  4. Isn’t there something to the fact that services like Hulu will always need the networks? The primary reason most people access Hulu is for content that is not original to Hulu. The networks like Comcast, NBC and the lot shouldn’t be scared of Hulu. It doesn’t torpedo their business entirely, just changes the part of the model that matters.