• by Tod Sacerdoti , March 11, 2011

Contrary to popular belief, it is good for your competitors to succeed.  Unless their success comes at your peril, high valuations benefit all category leader; the online video advertising business is no exception to this rule.

So what happens when Hulu, once a tech innovator and amazing growth story, becomes no more than an overpriced ad network and struggles to find its footing in the financial market?  All players in the video business suffer, which is why I have to ask, will the real Hulu please stand up?

Let's take a look at the Hulus we used to know.

"The Growth Story" Hulu: Fueled by a powerful value proposition (high-quality TV content streamed for free online), a beautiful and well-executed site and a clever ad campaign featuring the likes of Alec Baldwin, Hulu grew to 29 million users in its first 18 months.  Today, its content is not unique or robust enough to drive organic audience growth, and it has no user acquisition strategy to speak of. The reality is that Hulu.com viewership grew at the sluggish rate of 17% in 2010, as users headed to the cable networks' sites -- which by contrast, saw an 82% uptick in viewership.

"The Tech Innovator" Hulu: Remember when hearing Jason Kilar talk about the development of the Hulu player made you feel like you were hearing Silicon Valley lore?  Well, it's time to wake up to the new reality: Hulu is more like the Cable industry's Canoe venture than a Silicon Valley startup. The last technology development to come out of Hulu was the ability to "choose your ad" in 2009. The bottom line is that Hulu is no longer innovating, nor is it even really a tech company. 

The Marketer" Hulu: In 2009, you couldn't watch a leading sitcom or drama on Fox without seeing the cleverly produced Hulu ads.   Using a tried and true marketing channel (television!), Hulu drove viewers to the web in hoards.  Their Super Bowl campaign alone drew 10 million new regular visitors.  Today, Hulu's marketing and customer acquisition strategy is nonexistent, and last week they were completely owned by an ad network thanking them for blazing the online video trail as they are passed by.  The former clever, witty Hulu now seems quite out of touch.

"The Financial Darling" Hulu: We've all read the fairy tale of four Hollywood moguls joining hands, turning Clown Co. into a $200 million-revenue online media powerhouse and taking it public in order to live happily ever after.  Unfortunately, when the owners hate each other, the company doesn't own its content, the audience has stopped growing and innovation has ground to a halt, it's hard to have a fairy-tale ending. 

At the end of the day, if Hulu were public, had a $1 billion+ valuation, a growing user base and an innovative video platform, it would benefit all of us.  We need public companies for valuation purposes, flagship success stories for investors -- and more acquisitions for those that can't make it themselves. 

China's answer to Hulu, the $4.5 billion YouKu.com, trades at 21x revenue.  In the U.S., our only public online video companies are the now bankrupt Betawave, and Blinkx, a dubious video search, toolbar and screensaver company listed on the UK stock exchange. 

So, who is Hulu -- and how can it reemerge as a leader in the category it pioneered?  Can it be a technology innovator and lead the video revolution from a product perspective?  Can it operate as an extension of broadcasters -- and still find a value proposition that resonates with consumers in order to grow again?  Can it compete with Netflix on the subscription side of the business?  Can Hulu return to public markets for future financing? 

It's hard to know where this story ends -- but it'sclear we would all benefit from the return of the fairy tale.