Wall Street Wants To See The Money, Pushes Hulu To Charge For Content
- by Laurie Sullivan @lauriesullivan, November 1, 2009
For Wall Street, it's all about the money. Martin, who recently moved from Soleil Securities to Needham & Co., estimates it could take companies like Hulu 10 years to get it right. The creative geniuses behind Hulu have created a brand that consumers turn to when looking for quality videos, but don't know the first thing about squeezing out the profits.
Analysts keep pushing for Hulu to charge for at least some of the film and TV content. Martin believes the site should take a Google-like approach that provides out-of-print books, but charge for out-of-date movies and TV shows. She has a revenue model for new content, too.
But before consumers will pay a premium for newly created content, Martin believes the shows need to tell a story, and ad placement should look similar to television. That means running more than one sponsor per episode.
"The problem is, the 27-year-old geniuses have run amuck in these companies," Martin says. "They are clever, dynamic and understand social networks, and they go, 'oh, let's get on the Web -- let's innovate. It gives us lots of flexibility on what to do with the content,' and then they steal from the guys spending the $3 billion dollars and they don't do anything about it."
Martin says it's not difficult to take a $3 billion product and give it away for free, then pat yourself on the back for attacking millions of viewers.
Between $2 billion and $3 billion of "professionally produced" content sits on Hulu -- supporting Martin's $200 million aggregate market cap estimate for companies that own the site, including ABC, NBC, and Fox. But content owners are not doing enough to bring in the money for shows like "The Simpsons," "House," "Lost" and "The Office."
As the ad industry emerges from the worst recession, Hulu continues to grow by double digits. An ad-supported model could bring in the money. Hulu ranked No. 6 in online video sites, with 38.5 million unique viewers, Martin wrote in a research note, citing comScore's September numbers. ComScore ranked Hulu as the fifth-highest online video site, with 488 million videos viewed. Martin explains that this adds up to 1.9% of all videos viewed online in August.
The average Hulu viewer watched 12.7 videos in August, totaling 1 hour and 17 minutes of videos per viewer, compared with the average 3.7 minutes for online video across the Web.
The upside for advertisers to lock in more eyeballs resides in the approximate 38 million viewers. And it appears that brands are willing to pay a premium. Martin estimates that Hulu airs four advertisements per hour of programming at a $50 CPM, compared with 32 30-second spots in an hour for that same programming on TV at a $35 CPM.
"In the U.S., TV advertising revenue is $65 billion per year, plus video subscription revenue of $120 billion per year," Martin writes in a research note. "The market cap of the value chain at risk is $330 billion."
It's doubtful that many users will adopt a paid side. Plus, these Hulu shows are barely more useful/convenient than putting them on TiVo, And programs like WM Capture, available for next-to-nothing in digital vaults like 4shared.com, lets you record the streams, regardless of the number of spots in each pod, and watch without seeing the commercials. If Hulu gets anymore convenient, viewers may be able to cancel their cable
Douglas, I agree. Charging a premium for on demand (read:post-aired) content has never garnered a big share of the consumer media wallet. But that doesn't mean consumer media dollars aren't there to compete for. As Laura Martin points out, consumers spend $120 Billion/yr for cable/satellite subscription. The question is: how to compete for those dollars.
As you point out if Hulu gets anymore convenient (read:"live from anyhwere"), viewers won't need to pay cable/satellite subscriptions anymore. There is no way Wall Street, which is holding massive debt in Media companies, is going to sacrifice those revenues until they know they have an equal, if not better replacement, source of revenue.
Especially, because, as Laura Martin reveals the little known fact that consumer cable/tv subscriptions, $120 Billion, are almost double TV ad revenues $65 Billion - and ad revenues are declining.
Developing a transmedia platform that generates at least the same, better yet, incremental dollars is the challenge.
Katherine Warman Kern
@comradity
Many of the investors pushing for a paid HULU model are missing the point. HULU is popular because it's FREE and a worthy alternative to VOD. It's unlikely that consumers would pay twice to watch a show like 'The Office' (once via the monthly cable bill and once via HULU).
Additionally, the industry needs to stay focused on combating pirated and file-shared copies of these shows still available on P2P Networks, which is why keeping HULU ad-supported behooves them. Charging for the classics, sure. Content I can't find anywhere else. Go ahead. But charging for the regularly aired network shows. You may be shooting yourself in the foot here.
I wonder how much I'd be willing to pay for old episodes of "Gilligan's Island"? Oh wait, I KNOW the answer to that question. I agree w/Mr. Miller from Razorfish - it's popular BECAUSE it's free. In 2003 we (our company) built a YouTube-like product that charged a very small amount of money to convert, host and stream video. Once YouTube (the free model) became widely available, guess how many used the paid model? You can go kick the corpse here: www.itsactive.com. Trust me on this: a paid Hulu is a dead Hulu.
"It's popular because it's free." We all agree on that. But we're missing the bigger picture if we don't dig deeper than that. There is a disconnect, debating if consumers will pay for Hulu without identifying who's actually CONSUMING content from Hulu. It's the younger demographic and generation that is consuming the most content on Hulu. Gen X and Y that doesn't consume media the same way marketers & networks are used too. They are reactive with the opportunity cost of what is considered "PREMIUM" content. If they can't get the latest episode of the Office on Hulu, they WILL get it somewhere else - and for free. We're looking at content consumption as the niche, when in fact the audience behavior is the niche. (And a strong niche at that.) The debate isn't whether or not people will Pay for premium content on Hulu, it is whether or not people will pay for something they are USED to having for free. Hulu isn't creating an audience for video content, they are just expanding the existing audience and/or simultaneously taking away from other sites. People were consuming premium content online WAY BEFORE Hulu came into the fray. And before we could stream at a respectable bandwidth, we were DOWNLOADING everything we wanted to consume - also free.
The real question is, will people consume video today the same way we consumed music for the last 5 years? Can we compare video with music? Are there strong/subtle differences that influence how we monetize video content VS music?