Beginning what some analysts see as the beginning of a slippery slide away from wholly ad-supported models, Hulu on Tuesday debuted Hulu Plus -- its premium service that will charge consumers $9.99 a month for carte blanche content access over multiple platforms. When Hulu debuted in mid-2007, it was viewed as a potential threat to cable and satellite providers that charge a premium for content -- and in some cases ad-supported content. Hulu Plus, which will include some advertising, could therefore be seen as an admission that advertising alone is not enough to support premium content online. Not so, says senior eMarketer analyst David Hallerman. "It's an expansion of Hulu's business rather than a failure," he says. "What they're offering here is a deep catalog of content, and studies I've seen show that about a quarter of [consumer] respondents are willing to pay for that." Meanwhile, Hulu is positioning its subscription service as the perfect vehicle for marketers to target advertising across four screens. Initially, Hulu Plus is partnering with Nissan and Bud Light, and said it expects to include additional advertisers shortly. Hulu says is has been profitable for several quarters, and it is reportedly on pace to generate $200 million in advertising this year. Still, it's unclear whether any of its five owners -- NBC Universal, News Corp., Disney, and Providence Equity Partners -- are presently earning what they consider to be meaningful revenue from the site. Sweetening the deal for potential subscribers, Hulu Plus will be available over multiple platforms, including Apple's iPhone and iPad, as well as on some television sets via select 2010 Samsung Blu-ray players and Blu-ray Home Theater systems. Soon, Hulu says Hulu Plus subscribers will be able to access content through the PlayStation3 and Xbox video game consoles. Hulu Plus subscribers will have access to episodes of more than 45 current series from ABC, Fox and NBC -- from "Modern Family" to "Family Guy," along with full series runs and numerous back seasons of dozens of classics from "The X-Files" to "Miami Vice." In total, the Hulu Plus library aggregates content from more than 100 providers across broadcast networks, major studios and independent content creators. Still, isn't $120 a year a lot to pay for content, much of which can be consumed to varying degrees online? Not for many consumers, insists eMarketer's Hallerman. "The underlying key to all this is available content," he says. Late Friday, Hulu said its founding CTO and SVP of audience Eric Feng was leaving the company -- the first key departure for the company. Three existing Hulu executives will be taking over Feng's responsibilities beginning with Eugene Wei, who is taking on the audience business; Rich Tom, who will be heading technology, and Ting-hao Yang, who will be leading the China tech team.
Citing the success of Hulu and various efforts by YouTube, recent reports have heralded the dramatic rise of long-form video content. That said, consumers still far prefer watching short -- if not quite consumer-generated -- media, according to new research conducted by research/consulting firm Frank N. Magid Associates on behalf of video site Metacafe. Indeed, short "professional" videos now account for eight of the 10 most popular video genres, including music videos, movie previews, and TV show clips, according to the report. Moreover, consumers overwhelmingly said watching short professional videos online is just as entertaining as watching full-length TV shows on television, while more than one in four respondents also said short-form online videos are more entertaining than full-length TV shows. "The findings represent an important shift in behaviors and attitudes over last year," said Mike Vorhaus, president of Magid Advisors. "The popularity of professionally produced short-form content by the majority of respondents further solidifies this entertainment genre." The majority -- 55% -- of online video viewers now find online video ads just as, if not more, acceptable than TV ads, which is up 3% year-over-year. Those 18- to-34 years of age are more likely than older viewers to find online video ads more acceptable than TV ads. Overall, half of U.S. consumers now watch online video at least once a week, according to Magid. Last year, by contrast, 43% of consumers reported watching Web video at least once a week. Of particular note, viewers ages 18 to 24 accounted for the greatest increase in weekly online video viewership -- a finding advertisers should find particularly mouth-watering, according to Erick Hachenburg, CEO of Metacafe. "The dramatic increase we have seen over the last year in viewership from the coveted and traditionally hard-to-reach 18- to-24-year-old demographic raises the stakes for online video ad spend," said Hachenburg. "These consumers are the 'entertainment drivers' that define pop culture and determine breakout hits in the social media world." Specifically, 85% of males and 68% of females now watching online video weekly -- representing a 15% and 27% increase over 2009, respectively. Three out of four respondents reported watching some type of short, professionally produced videos online regularly, with the highest percentage among 18- to-34-year-olds -- 83% of males and 75% of females, respectively. Magid estimates that time spent watching online video will grow by five percent over the next 12 months.
With the avalanche of video and technology that's plowing through the consumer marketplace, is there a chance that the broadcast market will survive? As the upfront market wraps up, advertisers will spend billions on broadcast, cable and syndication programming. But as we all know, agencies and clients are preparing to invest in "video" as well -- not VOD, and not podcasting per se -- but specifically online video. Agencies are hosting meetings with online video ad networks like Break, Tremor and Brightroll to discuss the opportunities in video production, promotion and distribution. Ironically, production, promotion and distribution are exactly what television companies do. Except the main players in the video ad network space can do it for a fraction of the cost, while delivering an arguably equal, if not superior, experience to publishers. How can television networks possibly spend $1 million per episode on a TV drama, with the current ratings erosion, C3 viewer declines, and DVRs eating into their advertising dollars? How long will the argument of supply and demand hold up when audiences are going to be able to watch "Modern Family" through online video, Hulu, iPads, smartphones, pirating, and the hundreds of other ways? Will I be able to cut the cord on my DirecTV service and go completely digital? Probably not this year. I love to watch live sports! But even the holy grail of current live ratings growth is in jeopardy because of rights fees. A few weeks ago you saw CBS and Turner share in the fees of the NCAA tournament. Can they make significant money on that deal? Most would argue no. In the next few years, the TV model will change dramatically from what we know today. So you'd better take in all you can in the lean-back, commercially cluttered environment we currently have. Once the connection between the broadband Ethernet cord and your HD/3-D flat screen TV is made, and it's mounted on your wall with an interactive set-top box on your shelf, all bets are off. The traditional TV model will be a thing of the past and the consumption of digital video will be looked at as a day part, just as prime time is today.
Last week, Facebook's CEO Mark Zuckerberg admitted that over the past few years he's suffered from Twitter envy, probably focusing a bit too much on the media darling that has changed communications and media sharing, aspects that Facebook itself wanted to own and dominate in the 21st century. Today, with location-based startups getting all the attention, one would think that Zuckerberg is about to let history repeat itself by worrying too much about how to recalibrate Facebook to clash against upstarts Foursquare, Gowalla and company. Choosing the Right Battles That's not the battle Zuckerberg needs to focus on, at all. Truth is, while Google is planning to launch Facebook competitor Google Me, Zuckerberg should focus more on online video, in particular the lessons that both YouTube and MySpace learned along their inverse trajectory. If an Image is Worth a Thousand Words, a Video is Worth a Million With nearly 500 million worldwide users, Facebook touches all aspects of communications and media-sharing, and once it enters a space, it's easy for it own the category; years ago it launched its Photo feature and quickly became #1. But, photo-sharing and viewing are perfectly complementary with Facebook's mission and experience; your family and circle of friends are the very same people you take pictures of and then share them with. What about videos? For one, photos are not monetizable the way videos are. So while videos of friends and family do and will make their way onto Facebook, that kind of UGC won't be what Facebook can monetize over time. Facebook needs to decide what its video strategy will be, and that isn't an easy question to answer. Facebook Cracks the Top 10 List When comScore unveiled its May 2010 rankings of the largest video sites in the U.S., Facebook emerged in the #10 slot with 245 million monthly streams, right behind Fox Interactive, which had 328 million streams in the same period. ComScore and Nielsen measure online video views differently: ComScore includes video ad views, Nielsen doesn't. To Embed, or Not to Embed ---That Is the Question Either way, the views that Facebook gets credit for on comScore's top-10 list are limited to the video views generated in Facebook's player. In other words, the site generates a lot more streams -- probably twice as much -- but most come in video players of third-party aggregators that Facebook now looks to overtake in the months to come. Indeed, it's worth noting that Fox Interactive -- whose properties include MySpace and IGN -- was ranked #2 back in February 2007, and even as late as April 2009 owned a larger share of video streams; today, it's clearly in Facebook's cross-hairs. As Facebook marches toward 500 million users and consumers continue to embrace videos in their lives, it's inevitable that Facebook's share of online video continues to grow at a torrid pace. In fact, many would argue that Facebook will probably become the #3 video site by 2015 (if not sooner). Again, note that from February 2007 to May 2010, MySpace fell from 462 million to 328 million monthly views, but the overall U.S. market grew from 13 billion to nearly 34 billion, with leader YouTube exploding from 5 billion to nearly 6 billion. The only other site to grow at a ferocious rate has been Hulu, which has leveraged the rights to super-premium it earned via its pedigree to become the #2 video destination in the world after YouTube, the only other site topping 1 billion monthly views. Value is Relative, Crap is Absolute We already know that not all video streams are equal. In fact, not all pageviews are equal, either. A pageview on CNN, IGN, Wall Street Journal etc. is arguably worth more to an advertiser than a pageview on Facebook, especially if it contains a random picture of a friend or family member (or any UGC). Facebook's revenues have grown rapidly, to roughly $800 million last year and $1.1 billion this year, but its success is a function of its massive size and omnipresence. It has become successful despite the fact that social media and branded advertising don't go hand in hand. In other words, as it starts to think increasingly about video content and advertising, Facebook needs to ensure that each incremental pageview adds valuable inventory. If it simply duplicates the content it houses in photo and text format in videos, then it's not really doing much to address its long-term problem of monetizing its burgeoning inventory. To Branded Advertisers, UGC is Worth a Warm Bucket of Spit The problem is few advertisers want to advertise next to random photos -- and even less will want to get near random videos, which is what videos uploaded through Facebook's player will include. The fact that a lot of the videos that are streamed on the Facebook.com property are embedded video players from YouTube and others means that Zuckerberg needs to also revisit MySpace's history What led to YouTube's early growth was the fact that MySpace users embedded YouTube players on their profile pages, much the same way Facebook users do today. MySpace could have become a massive repository of online video content (even if it meant via YouTube players), but then the powers-that-be at Fox decided to initially block YouTube and then enforce its own player. The result didn't really hurt YouTube's growth over time and further ensured that people didn't share videos on MySpace, but rather, YouTube. MySpace then set out to build MySpace TV, which never matched YouTube's online video mojo. Of course, if the video player being used on Facebook remains YouTube's, then Facebook cannot monetize the videos as successfully. However, encouraging people to use Facebook's player means they are going to build a library of personal (or pirated videos). What the F is a Social Utility Anyway? Ultimately, the bigger issue has to do with Facebook's DNA, which is a desire to remain a "utility" and platform, instead of morphing into an entertainment portal. To be fair, Yahoo and MySpace focused on the entertainment side of things, which hurt them over time; for evidence, look no further than the average time spent and pages generated on Facebook relative to the traditional portals. Content is King, But So What? But more eyeballs doesn't translate into more ad dollars. Considering that 47% of people's time online is spent consuming content, and premium and super-premium video content will garner higher ad rates than UGC (which advertisers don't want to touch anyway), then perhaps Zuckerberg needs to start thinking and worrying about online video a bit more instead of the latest fad. The answers aren't obvious and the strategy to execute won't be easy, but Facebook has an interesting opportunity with video. Whether or not it realizes a fraction of that potential remains to be seen.