With Hulu set to crash traditional TV’s big “upfront” ad selling party with a big presentation to top Madison Avenue media buyers Thursday, the New York Times published a story headlined, “An Online TV Site Grows Up.” Issuing a report concurrently on Tuesday morning, however, Bernstein Research wondered, “Can Hulu’s Parents Afford to Let It Grow Up?”
There’s no doubt that Hulu is becoming a more influential media business, with the company also revealing Tuesday that its paid subscription base has reached 2 million and that 2012 revenue is on pace to far outstrip the $420 million grossed in 2011.
Led by senior analyst Todd Juenger, however, Bernstein wonders how Hulu’s corporate owners, Walt Disney Company (s DIS), News Corp. (s NWSA) and Comcast (s CMCSA), can continue to let their over-the-top service flourish while pursuing goals tied to television’s traditional models.
For one, as these three owners seek to grow re-transmission fees for their broadcast networks, Bernstein says providing their programming to Hulu serves as an undermining influence:
“It is very hard for the networks to argue that multi-video program distributors (‘MVPD’s,’ i.e. the cable/satellite companies) must pay them a retrans fee for the right to retransmit the broadcast signal to the MVPD subscribers, if the networks are at the same time going straight around the MVPD to the consumer via Hulu. This conflict will intensify as Hulu usage increases and broadcasters seek higher and higher retrans pricing.”
Last year, News Corp.’s Fox network began delaying the streaming availability of its new series episodes on Hulu’s basic service for eight days following initial broadcast, and Bernstein expects Disney’s ABC and Comcast-owned NBC to soon do the same.
Meanwhile, the participation by media conglomerates in TV Everywhere — the industry-wide cable/satellite/telco initiative aimed at moving programming online and on-demand but still keeping the traditional subscription model in place — is counterintuitive to supporting Hulu, Bernstein contends:
“In the longer term, TV Everywhere, if and when it becomes broadly implemented and promoted, will put Hulu (and Netflix) under even more pressure. TV Everywhere would essentially set the price of on-demand, multi-device, next-day viewing of current season content (broadcast and cable) at $0. It becomes a feature of pay-tv, rather than a stand-alone service (which is why it is such a smart strategic initiative for the MVPD’s).”
Eventually cut off from the freshest TV programming, Bernstein speculates that, like Netflix, Hulu will have to make do with library content, foreign movies and TV shows, indie films and original programming.
Other points of speculation in the Bernstein report:
— Hulu will increase its “ad load,” delivering as many as 10 commercial spots in each episode. The increased advertising inventory on not just Hulu, but digital video content from rival distributors, will drive down cost per impressions (CPMs). But Hulu’s revenue will increase as long as its CPM price remains above $25, which Bernstein thinks is probable.
— Bernstein also predicts that Hulu will begin selling its ads much like traditional TV does, based on “gross ratings point” (GRP) metrics provided by Nielsen. “Management believes Nielsen Online Campaign Ratings will allow them to sell like TV — selling guaranteed audiences of a specific demographic, with GRP measurement — bringing in a new roster of advertisers.”