Mixed Signals

Hulu: Great Dance Party, or Two Too Many Big Partners?

2/25/2013 10:40 AM

 

Hulu, the Santa Monica, Calif.-based online video service provider with a name that reminds most Haoles of an odd dance party on Pacific Sandwich Isle, came along at just the right time to capture pioneer status and grab the early network online video investment money. Yet, despite that solid foundation, other foundational assets – such as a clear and easy to operate ownership and management structure, and thus a clear vision of its future – remain unclear.

This article highlights the fundamentals of Hulu’s digital retail distribution.

Recent visits to many new video distributors have provided the basis for these Multichannel News write-ups (See, the first article about Netflix, in “Mixed Signals”; the second about Xbox;  the third about Amazon; and the fourth about Vudu. In this, the fifth, of more than half-dozen write-ups about today’s key digital media players -- all of which have their sights set on the delivery of digital video to end-users -- The Carmel Group examines Hulu, a company that typically offers one of today’s most broadcast user-friendly digital platforms and well-known brands, yet also one that is mired in, shall we call it, “challenged decision-making.”


Strengths

Indeed, Hulu’s basic company description is perhaps one of its best strengths, i.e., “[An] online video service offering shows, clips, and movies through an ad-supported subscription service, destination sites online (Yahoo, MSN, AOL, IMDb and TVGuide) and Hulu Plus. Via Hulu, more than four hundred content companies deliver their assets to a plethora of consumer electronics (CE) devices, such as Internet-connected TVs, set-top boxes (STBs), personal computers (PCs), gaming consoles, mobile and smart phones, and tablets.”

What this description leaves out, however, is both one of Hulu’s greatest strengths, and, as noted below, one of its greater challenges. Hulu is owned nearly equally by three of the largest global content providers, i.e., Disney, Fox and Comcast/NBCU. This reality gives Hulu the chance to use those relationships and to obtain great content at value pricing from these same studios and others. Thus, Hulu has become a standard for most consumer CE devices today, and is part of the majority of video manufacturers’ ecosystems. It also provides Hulu with deep pockets for other forays into (and risks in) the Wilderness of New Media.

Specifically, Hulu boasts the greatest choice of older, rerun TV shows, a positive ad-supported business model, and an ever-growing children’s selection of content, and a fair sum or movies, all real plusses in today’s ever more hyper-competitive on line video and digital media battlegrounds.     

Challenges

Stack it any way you like, partnerships can be tough, especially long term. Add to that the ultra-competitive natures of Hulu partners Disney, News Corp and Comcast, and people inevitably start stepping on their partners’ toes. Soon-departing Hulu CEO Jason Kilar sometimes felt like a ping-pong ball inside a lottery wheel for all the bouncing and bruising he has taken. Yet all that said, Hulu’s 2012 numbers, covered below in the “Other” section, account for some floor performances that might initially wow even the judges from Dancing With The Stars. (An example is Hulu’s reported YOY 2012 increase in gross revenues of $275 mil., from $420 mil. in 2011, to $695 mil. in 2012; a deeper look, however, shows moderate subscriber gains, and hefty expenses to get there. Plus, on the positive side, an estimated 320 mil. Internet connected devices -- without including desktop PCS and laptops -- are now capable of carrying Hulu content.) TechCrunch’s Leena Rao does good job covering this year-end 2012 financial information here.

Notably, one development that concerns many Hulu observers and admirers: Hulu is now rumored to be working with cable operators to establish a system in the future where only cable subscribers will have access to all or some of Hulu’s content (or will have it at value pricing levels).  

Also, Hulu’s lack of a substantially competitive movie library (in part because of a focus on TV shows), and lack of a CBS relationship, means that large swaths of content remain unavailable, making Hulu less competitive in those respects. 

Other

Hulu is today bent on being the No. 1 destination for re-run TV shows in America. It has just launched a new service in Japan, already reaching scores of millions of users, and paving the way for more international growth.

Specific ownership figures include each of Fox Broadcasting, Disney, and NBCU at around 30%, and others at 10%. Its current total estimated Hulu Plus user base is above 3 million, far short of the nearly 30 million U.S. users touted by rival Netflix.

From its HQ office in Santa Monica and estimated staff of 350 people create pricing strategies that today bring users Hulu for free, as one package, accompanies by five advertisements of 30-seconds each per episode. The Hulu Plus package costs $7.95/month, and of course means that shows are either of fewer ads or none at all. Hulu claims that in 2012 it upped its advertiser pool by 28%, to more than a 1,000 by current counts.

Most interestingly, and something that is just a blessing for consumers, is the expectation that Hulu will invest much more in content, much the way that rival Netflix has done via its House of Cards series roll-out earlier this month. Hulu is said to have invested some $500 mil. in content during 2012, but not all of that is dedicated to producing new content.

Summary

Jason Kilar recently summarized, “At Hulu, we are doubly fortunate in that we are at the crest of two massive waves that we believe will persist for the long term: the rise of online video advertising and the rise of online video subscription services.”

Yet, in a long and fascinating article about Hulu and the still-CEO-but-leaving-the-job-soon Kilar, author Nicole LaPorte summarizes perhaps more realistically with the following, “As ratings dip, TV production costs soar, and video-streaming competition increases, the networks may well wind up having less command of the digital future of content than they did when they launched Hulu in 2007. And while Kilar still believes, deeply, in the future of a digital content warehouse that satiates millions of customers, much of his vision has been co-opted by others who are doing things bigger--if not necessarily better--than Hulu.” This comment speaks volumes, not only from the micro/Hulu POV, but from the macro/digital media POV, as well.

Jimmy Schaeffler is a telecom author and chairman/CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (www.carmelgroup.com).

September