In the Super Bowl commercial calling
"an evil plot to destroy the world," 30 Rock
star Alec Baldwin intones: "There's nothing you can do to stop it." He's right that viewers can't get enough of the joint venture from
) and News Corp. ( (NWS)
). In February it had the biggest surge in unique viewers of any online video site in that period, according to comScore ( (SCOR)
Even Disney ( (DIS)
), a media company that has restricted most of its television and film content to its own sites, is negotiating to put videos on Hulu in exchange for an equity stake in the joint venture, according to a source with knowledge of the deal.
But Hulu is facing plenty of roadblocks elsewhere, including among advertisers, partners that provide entertainment content, and even its parent companies concerned that the site might cannibalize their own competing media. Under pressure from content providers, Hulu has gone back on its pledge to allow anyone to syndicate its content anywhere on the Web. At least one analyst says the site is struggling to find ads for many of its videos. And a lengthening list of rivals is rushing to move content online, spurred by the success of Hulu and online video leader
, owned by Google ( (GOOG)
To News Corp., NBC, and other media companies pinning their hopes on Web video, the speed bumps keep alive concerns over the ability to offset diminished demand for broadcast advertising with revenue from Internet programming.
Ads Aren't Following Eyeballs
Analysts are already revisiting their forecasts for ad spending on Hulu and other online video sites this year. In November,
's Arash Amel predicted Hulu would generate $180 million in advertising this year, matching or surpassing YouTube. London-based Amel still expects Hulu to give YouTube a run for its money, but he now thinks each will take in only around $120 million in 2009.
That's up considerably from the estimated $65 million Hulu generated last year but still disappointing considering the traffic surge, Amel says. "What we've seen is rapid growth in consumption, but the advertising isn't keeping up," he says. Based on his studies of Hulu, the site has only sold about 60% of its ad inventory, with much of the remaining space filled with public service announcements, Amel estimates. "I don't think that anyone can say they are impervious to the macroeconomic environment, but we're still hugely optimistic about our ability to monetize the service," says Hulu spokeswoman Christina Lee. Rapid growth in content and viewership make it "more challenging for us to project our future inventory accurately," she adds.
The payoff for advertisers is still far smaller online than with TV programming. A half-hour show that carries about two minutes of advertising on Hulu will have four times as much advertising when it's broadcast on TV. Although online ads can cost more per viewer, TV advertisers spend more because they can reach much larger audiences. Online video has the benefit of targeting certain types of customers and letting marketers include interactive elements, but in the current economic climate many advertisers are unwilling to experiment. "Right now advertisers are trying to cut back anywhere they can," says Jason Blackwell, an analyst at
. "So unproven models like Hulu are usually the first things to go."
One of the great promises of Hulu has been the free syndication of its content. Rather than insisting viewers show up at a certain destination, Hulu has allowed anyone to embed its videos anywhere. It also has worked with other video sites to allow its content to supplement video libraries elsewhere. But in February the site disabled the ability of two popular sites to pull in its videos: TV.com, a video-aggregation site owned by CBS ( (CBS)
, an independent application that lets users watch Web video on their TV sets.
More Limits Are on the Way
Hulu Chief Executive Jason Kilar wrote in the company's blog on Feb. 18 that the Boxee takedown was the result of a request from the site's content providers. Analysts believe the incident may have been a sign that News Corp. and NBC are worried about cannibalizing TV viewership. "[Hulu's] parents are holding it back," says Colin Dixon, practice manager for broadband media at Diffusion Group
in Frisco, Tex.
The two parent companies have also taken steps to limit how much of their own content appears on the site and when it appears. In January, Hulu pulled episodes of It's Always Sunny in Philadelphia
, a show on News Corp.'s FX Networks. In February, NBC's Sci Fi Channel added an eight-day delay to the posting of episodes of its popular Battlestar Galactica
series to Hulu in hopes of increasing its TV viewership for the final shows of its season.
Forrester ( (FORR)
) analyst James McQuivey predicts that more video content creators will impose limits on online audiences. "We expect this situation to intensify throughout the first half of 2009, resulting in bolder content restrictions on the part of content owners and more doubt cast on the role of online TV show aggregators," McQuivey wrote in a Mar. 13 report, Preparing for the Coming Online TV Backlash
Brahm Eiley, president of Toronto-based media researcher Convergence Consulting
, says many within the TV industry still view sites like Hulu as a promotional vehicle to support more lucrative broadcast operations. "They don't put everything they have online because they don't want to kill their cash cow, which is television," Eiley says.
CBS and ABC Want In
Still, even TV veterans realize that the future of their business is, in some form, online. Recently, Time Warner ( (TWX)
) CEO Jeff Bewkes laid plans
to offer a service called TV Everywhere, which will offer its cable subscribers access to all of the shows they watch on TV on a members-only site on the Web.
Rival online video offerings are finding success. Netflix ( (NFLX)
) has added more than a million subscribers since introducing streaming TV shows and movies to its service. CBS and Disney-owned ABC, two networks that currently don't allow their content on Hulu, each hold about a 1% share of all videos viewed on the Web, compared with Hulu's 2.5%. Under the proposed terms of the deal being discussed between Disney and Hulu, first reported by the blog PaidContent, some ABC shows, such as Lost
and Ugly Betty
, would become available on Hulu.
Competing players could make hay as Hulu works out the kinks of its business model and content partnerships. "Being first doesn't always mean you'll be the longest-lasting or most successful company out there," says Blackwell at ABI Research. "[Hulu is] good for the industry because it's bringing awareness and finally creating momentum for these kinds of services, but at the same time it could become a victim of that success."
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