Hulu: Premium Content Only

NBC Universal and News Corp.'s joint-venture video site begins testing, but not as a user-generated-content rival to YouTube

Hulu, the video site jointly owned by NBC Universal (GE) and News Corp. (NWS), was initially hailed as a potential YouTube killer. On the eve of its launch, it's looking a lot more like an competitor. The site, which begins invitation-only testing Oct. 29, is focused solely on broadcast television and film content, and the brand advertising that goes with it. "We are not a user-generated content site," stresses Hulu Chief Executive Jason Kilar. "This is very much about premium content."

Hulu has the stuff to back up that claim. The site includes complete seasons of full-length episodes from well-known television series, such as NBC's The Office, which are streamed on demand, free of charge, with the click of a button. It also features a handful of full-length feature films and sought-after clips from broadcast shows, such as actress Natalie Portman's Saturday Night Live rap video. And the video viewer has a variety of viewing options unavailable on other sites, funded no doubt in part by the $100 million investment by Providence Equity Partners.

Most impressive, however, is the sheer number of just-aired episodes from Fox and NBC's prime-time lineups. Episodes of shows such as 30 Rock, Heroes, and 24 are put on the site the day after their broadcast debut.

Premium Attractions

In fact, Hulu has pretty much every show that NBC and News Corp. have streaming on their individual Web sites (BusinessWeek, 8/30/07)—it just has them all in one place. The hope for Hulu is that, by aggregating some of the most popular television content, it can attract large audiences and expose online television viewers to shows, and ads, they may never have watched. Through revenue-sharing arrangements, Hulu will also distribute that content to partner sites, such as Microsoft (MSFT) and Time Warner's (TWX) AOL.

Building an online hub for premium content isn't exactly a new proposition. Seemingly every major Web player from AOL to Yahoo! (YHOO) has developed a video site in hopes of cashing in on the growing number of U.S. Web surfers who watch video online and the advertisers who want to reach them. Roughly $2 billion is projected to be spent on online video advertising in 2009, according to eMarketer. That amount is less than 3% of the projected television marketing spend for that year. But online video advertising is growing fast—the rate was nearly 90% in 2007 over 2006—and the industry threatens to steal more of the television budget as technology improves.

Premium content is where many of the advertising dollars will go. That's one reason why, though many online sites have sections for user-generated videos, they also have channels exclusively for the kind of professional, trusted content, such as broadcast television shows, with which advertisers are most willing to associate their brands. Even Google's (GOOG) YouTube, the leading user-generated site, has channels with dedicated, branded content on which it has recently begun selling advertising (BusinessWeek, 8/21/07).

For Studios, Content Control

Advertising on Hulu is refreshingly minimal. Full-length television episodes have a single sponsor. Users see a brief, 7- to 10-second message at the beginning of the show naming the sponsor and one 30-second commercial embedded in the show. There is also a sponsor banner advertisement affixed to the player.

Still, there are several challenges for creating a one-stop site for premium content. The first is convincing competing media companies to contribute content to the site. That obstacle has proven somewhat easier to overcome for online media companies such as Yahoo than for NBC and News Corp.'s Hulu. While many media companies distribute their content on well-trafficked sites such as Yahoo, NBC and News Corp.'s broadcast rivals—namely CBS (CBS) and Disney's (DIS) ABC—have yet to sign on with Hulu. Hulu did, however, secure content deals with Sony (SNE) and MGM (MGM).

The second obstacle is getting people to visit a particular site rather than the many other places on the Web where they can see the same shows. This is one obstacle Hulu's Kilar says he doesn't care to conquer. A goal of Hulu is to put the control of online content back in the studios' hands. The Hulu player enables its media parents and partners to control what advertising appears alongside their content and monitor where the programming is watched, regardless of which site—be it Yahoo, AOL, Microsoft's MSN, or any other site—is hosting the show. As far as Hulu and its parents are concerned, it doesn't matter where viewers watch the shows and their ads. It just matters that they watch.

No Hulu Hard Sell

Of course, Hulu doesn't have to share the revenue with Yahoo or another partner if a user watches on Hulu. But Kilar says the revenue-sharing deals with its online distribution partners are sufficiently lucrative that Hulu doesn't need to push audiences to watch on its site. In fact, one of the key features of Hulu is the ability for users to embed its players and shows in their own blogs and social network pages. "If people come to Hulu, that's fine, but we are not trying to push audiences to any one place to watch content," says Kilar.

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