Can Hulu Hang On to Its Online TV Audience?

jasonkilar

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 reported that Hulu users watched 19.4 billion minutes, or 323 million hours, of online TV. Meanwhile, viewers at the competing network sites — ABC, CBS, NBC, Fox 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 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, 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 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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