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Can Hulu Hang On to Its Online TV Audience?

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Hulu viewers watched twice as much video on the online video site as on the next five network TV sites combined. But with content partners rapidly growing and threatening to pull — or severely delay — programming that appears on Hulu, the startup may have problems keeping its audience on the site.

In its 2010 Digital Year In Review white paper, comScore (s SCOR) reported that Hulu users watched 19.4 billion minutes, or 323 million hours, of online TV. Meanwhile, viewers at the competing network sites — ABC, (s DIS) CBS, (s CBS) NBC, (s CMCSA) Fox (s NWS) and the CW — watched half the amount of video. The top five network sites accounted for 9.7 billion minutes, or 162 hours, of online TV viewing. That said, viewership at network sites grew more quickly than Hulu over the past year: Hulu viewership increased 17 percent in 2010, compared to 82 percent growth for the broadcasters’ video sites.

That growth is happening at the same time that Hulu’s content partners — including ABC, Fox and NBC — are having second thoughts about what content they’re going to give up to the online video site. The Wall Street Journal reported last month that ABC and Fox were considering pulling some free, ad-supported content from Hulu, making it available in paid formats like Apple’s (s AAPL) iTunes or Netflix instead.

Hulu’s pitch to broadcasters is that it helps drive more monetization per episode than most other platforms, including DVR and cable. In a long blog post defending the company’s business model, CEO Jason Kilar said Hulu’s averaged $0.143 in ad revenue per episode in 2010, better than broadcast DVR ($0.097), cable ($0.106) and cable DVR ($0.048). While not quite as high as the monetization for broadcast TV, which averages $0.216 per half-hour episode, Hulu’s fourth quarter monetization rose to $0.185 per episode by comparison.

Hulu made more than $260 million in revenues last year, and expects to top $500 million in 2011. But Hulu’s current business model has it sharing revenues with its content partners. While the broadcasters and their distribution partners fear that Hulu’s growth is cutting into more traditional TV viewing, there’s also the belief that they could make more money online by selling their own video inventory rather than sharing sales with Hulu.

What’s more, some content partners would rather have Hulu license their content and get paid up front rather than sharing in revenues. That’s spurred in part by deals that the broadcasters are doing with other providers like Netflix, (s NFLX) which reportedly paid more than $150 million to Disney for popular shows from ABC and the Disney Channel. Even with half a billion dollars in revenues, that’s difficult for a company like Hulu to compete with.

At the same time, Hulu’s deal to bring on more content from Viacom’s (s VIA) MTV and Comedy Central has its viewers waiting three weeks for Jersey Shore and Tosh.0. That suggests Hulu might do more deals like it, where it sacrifice the freshness of content to keep long-tail videos on its service.

The problem is that Hulu exists primarily as a platform for catching up on shows that viewers missed during live broadcasts. If it can’t deliver shows that viewers want to watch in a timely fashion, they’ll likely go somewhere else to find that content instead. Viewers have already shown that they are willing to go to network sites for TV programming; if those network sites have newer content than Hulu, it could see its audience disappear.

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8 Responses to “Can Hulu Hang On to Its Online TV Audience?”

  1. Nathan Evans

    Ryan, nice post. I agree Hulu is going to have a harder time competing with networks. Essentially, Hulu pioneered a model that they can now easily copy. Plus, I think a defining factor will be device manufacturers. Once the networks can get reliable apps on connected TVs, they can make Hulu irrelevant. If I were in there shoes, I’d try to become an aggregator of back catalogs. Hulu could do this with much greater efficiencies than networks and studios and therefore find a new niche.

  2. “there’s also the belief that they could make more money online by selling their own video inventory rather than sharing sales with Hulu.” – Exactly! same goes for all other aggregators.

    • Ryan Lawler

      Which is why so many video aggregators have died over the years. I’d be curious, though, to see what monetization rates are at the network sites. If Hulu’s monetization is 2x what networks can do, then it makes sense to do an ad split.

  3. gonzo90017

    I usually go to Network sites to watch shows since they’re usually available in higher quality then on Hulu. Example being Fox shows which are only in 480p on Hulu.

  4. We’ve just canceled Hulu Plus as were were experimenting with that and Netflix to cut cable. Hulu Plus is just not consitent enough across the device spectrum to use as a cable replacement (probably what they are intending). It’s really annoying when some shows are only available within the web browser and not on other devices. We pay a fee for their service, we should be able to watch on whatever device (TV, iPad, computer) that we want to.