The Story of Hulu

The Story of Hulu Page 1

The Story of Hulu | Andrea Lovan | Sebastian Moraga | Ivan Orbegozo | Jessica Roberts

The Life and Times of Hulu
Bill Watterson, the creator of the comic strip Calvin and Hobbes, once drew his strip's lead
character wanting to write his autobiography. When Hobbes, the strip's co-star, reminded Calvin
he was only six years old, the boy shrugged, replying "I've only got one sheet of paper" (2005).1
Writing about the history of Hulu also seems like an exercise in minimalism as futile as that
boy's one-page booklet.

To hear the leaders of Hulu.com tell it, simplicity is essential to the success of their three-year-
old venture. "Less-is-more is absolutely playing out on Hulu," says its CEO Jason Kilar in Erik
Qualman's book Socialnomics, referring to the smaller, precisely-timed chunks of ads found
throughout Hulu's programming. The bite-sized commercials help keep advertisers happy with
higher ad recall and viewers delighted with fewer interruptions of their shows. 2

Hulu's success is built on a simple concept: provide Americans the ability to watch cable and
network TV shows as well as movies legally and for free. The mission has been self-described
as delivering the "world's premium content, when, where and how you want it," providing
viewers with a comprehensive selection of full-length movies and trailers, current and archived
TV shows, and “extra” web-exclusive content. While at it, Hulu has changed the way people
normally would view said content, with innovations ranging from timing the commercial breaks
to letting viewers choose when and how to view them.3

Fans of YouTube have likely encountered a pink bar across the screen stating that certain content
has been removed due to copyright violations. Hulu's had no such copyright issues: content came
from founding partners, Fox and NBC Universal.4

Popular shows like The Office, The Simpsons and Heroes were part of Hulu's first batch of
programming, along with some older classics, such as The A-Team.5 Such content came with a

1
Throughout the anthology, Watterson’s iconoclastic character wants to write his autobiography.
This particular mention happens in Volume 1.
2
p.162-163.
3
p.162, 163
4
Hosch, W.L., Hulu, (2010). In Encyclopaedia Britannica. From the Online Edition:
http://www.library.eb.com/eb/article-9475218


built-in fan base from its days on regular TV. Kevin McGurn,6 Hulu's vice-president of national
sales explained in Socialnomics, most of Hulu's content at the beginning was professionally
produced and already had an audience. "Things on the Web don't have to be an instant success,"
McGurn said. "In fact, they generally aren't unless they were popular somewhere else first.”7

Unveiled in its beta version via invitation to a small group in 2007 and opened to the entire U.S.
in 2008, Hulu made friends fast, reaching up to 40 million viewers per month in its first year. 7
Despite these numbers, Hulu was born with some limitations such as content being inaccessible
from outside the United States or through other platforms.

The origin story of Hulu, is not that of a meteoric rise as much as it was a story of an evolution.
This evolution took decades to reach a point that allowed Hulu to exist, let alone succeed,
seemingly out of nowhere. This evolution has as much to do with the changing American living
room as it does with the changing American technology. About 30 years ago, Americans could
watch something any day of the week and be fairly certain that what they watched would be a
mandatory topic at the office, at the water cooler or at the playground the next day. With three
major channels and little or no cable TV to speak of, catch phrases like "Exacta-mundo," or "I
pity da fool," were common currency among different demographic groups. If we go back farther
than three decades, this phenomenon can be seen in even greater relief, simply by the
superlatives in our vernacular: Johnny Carson was the King of Late Night,8 while Walter
Cronkite was the “Most Trusted Man in America.”9 Late in the 1970s and early in the 1980s, the
appearance of the videocassette recorder along with the growth of cable TV began changing the
assumption American were consuming programming at the same time.

Up to that point, cable TV had aimed to provide TV broadcasts in hard-to-reach areas. One of
these areas was Astoria, Oregon, site of the first “Community Antenna Television Broadcast,”
the precursor of today’s ubiquitous cable TV 10 and thus ground zero of cable television. With
5
Forssell, A. (2008, November 21) It’s All About the Content Retrieved from The Hulu
Blog:http://blog.hulu.com/2007/10/
6
p. 165.
7
Qualman, E. (2009) Socialnomics: How Social Media Transforms the Way We Live and Do
Business.
8
Severo, R. and Carter, B. (2005, January 24). Johnny Carson, Low-Key King of Late-Night TV,
Dies at 79. New York Times Online Edition. From
http://www.nytimes.com/2005/01/24/arts/television/24john.html
9
Martin, D. (2009, July 17). Walter Cronkite, 92, Dies; Trusted Voice of TV News. New York
Times Online Edition. Retrieved August 1, 2010 from
http://www.nytimes.com/2009/07/18/us/18cronkite.html
10
Keller is a former Microsoft employee and an instructor at the University of Washington’s
Master in Communication and Digital Media program.


the end of the 1970s and the arrival of the 1980s, the goalposts moved, and the aim became
bringing a wider array of channels such as premium movie services, directly into the homes of
thousands.11

With more people watching a wider variety of things and, thanks to the VCR, at different hours
or watching no TV at all, the viewing habist of Americans was facing a sea-change. As an
example, we have the following data from Robert Thompson’s "Television in the U.S.," an
article on the online version of Encyclopaedia Britannica:

● While only 1 percent of American households had a VCR in 1980, 68 percent of
Americans had a VCR by 1989.
● While only eight percent of American households had basic cable in 1970, 23 percent had
basic cable in 1980 and 46 percent had it by 1984.
● In comparison, ABC, CBS and NBC had a higher than 90-percent share of the viewers in
the late 1970s. By 1989 that had dropped to 67 percent and kept dropping toward the end
of the twentieth century.12

This fragmentation of the TV audience was aided by cable channels eschewing the homogonized
one-program-fits-all approach of their network predecessors and instead aiming to please
specific sections of the public. Thus, the birth of niche channels with specialized demographics:
Nickelodeon for children; ESPN for sports fans, Lifetime for women, CNN for news hounds and
MTV for teens (and at one time, music junkies). The strength of targeting was shown in micro-
fragmentation, with the arrival of VH1, for older music junkies who graduated from MTV.11

Concurrently, television sets became cheaper, which led to families owning more than one and
further diluting the traditions of entire families gathered around the tube. Instead, people were
now watching different shows on different channels on different TV sets in different parts of the
household. Thus ended the custom that cut across social lines, class strata and education levels,
which Robert Thompson called in its Britannica article on the history of TV in the U.S., "feeding
from the same cultural trough," and which had been the case since 1929.11

By 1989, the network trough fed fewer and fewer people, and those still finding a cultural meal
there were being fed a substantially different diet than they had as recently as five years earlier.
Wholesome, clean-cut family sitcoms (Family Ties, The Cosby Show) were being replaced by
more 'honest' looks at the changing American mores. Then fledgling network FOX became a
major player by offering edgy programming Married...With Children and The Simpsons, largely
in thanks to different standards for “network” and non-network channels. This emptying of the
11
Thompson. R. (2010) Television in the United States (2010). From Encyclopaedia Britannica
Online Library Edition:http://library.eb.com/eb/article-283658
12
This article may be best approached from a library database.


line at the network trough happened around the same time another medium was becoming
increasingly popular and accessible.

Once the hobby of an obscure few, the internet became ubiquitous in American life. Articles and
photos soon gave way to embedded audio and video files. This in turn sparked the creation of
video content and by 2007, sites like YouTube -- founded two years earlier -- were becoming the
water cooler conversation fodder of 40 years earlier. Network television, in an attempt to keep its
once-faithful viewers attached to their brand of programming, moved some of it to the internet,
which was fast becoming the king medium of the 2000s. CBS struck first, launching Innertube in
2006. America Online launched In2TV that same year. NBC Universal teamed up with News
Corporation, owners of Fox, and launched its own venture, which they named Hulu.

The Beta version of Hulu launched on Oct. 29, 2007,13 and the general public had full access to
Hulu on March 12, 2008.14 Soon after, the Walt Disney Company, owners of ABC, bought a
stake in Hulu.com and also began showing programming. By January of 2008, TechCrunch,
GigaOm, Read/WriteWeb and VentureBeat awarded Hulu.com the 2007 Crunchies award for
best video startup.15 Once the site launched on March 12, Hulu carried content from, besides its
founding partners, MGM, Sony and Warner Brothers.

By 2009, the Hulu pie was split in four ways: co-founders News Corp. and NBC/Universal each
had a 32 percent stake, newcomer Disney had a 28 percent stake, and Providence Equity Partners
– Hulu’s private backer that invested $100 million in 2007, according to its Web site – divvied-
up the remaining 8 percent. The sizes of the slices are vital to understanding Hulu. These are not
just managing partners--they are the content providers. As Chadwick Matlin of the Slate.com
business and tech section “The Big Money” noted on his Hulucination blog in February of 2010,
a disagreement between the majority partners could lead to an entire network’s programming
being pulled from Hulu. “It’s as if,” Matlin noted, “Amazon were owned by booksellers.”16

Each of the four backers has a seat on Hulu’s board of directors. The 12-person board is
composed of three members from Disney (Robert Iger, Kevin Meyer and Anne Sweeney), three
13
Kilar, J. (2007, October 28) Beta Testing Begins for Hulu. Retrieved from The Hulu Blog:
http://blog.hulu.com/2007/10/
14
Kilar, J. (2008, March 12), Welcome To Hulu. Retrieved from The Hulu Blog:
http://blog.hulu.com/2008/03/
15
Feng, E. (2008, January 20), And the Crunchie Goes To… Retrieved from The Hulu
Blog:http://blog.hulu.com/2008/03/
16
Matlin, C. (2010, February 3), NBC Officially Owns 32 Percent of Hulu (Until Comcast
Acquires It) Hulucination blog on TheBigMoney.com, Business and Technology section of
Slate.com. http://www.thebigmoney.com/blogs/hulucination/2010/02/03/nbc-officially-owns-32-
percent-hulu-until-comcast-acquires-it


members from News Corporation (Chase Carey, Jim Gianopulos --of Fox-- and Jonathan Miller),
three NBC/Universal members (Salil Mehta, Jean-Briac Perrette and Jeff Zucker), two from
Providence Equity Partners (Al Dobron and Jonathan Nelson), and Kilar, who arrived to Hulu
after a decade at Amazon17 and an earlier stint at Disney. The executive team at Hulu, besides
Kilar, is composed of the following:

• Jean-Paul Colaco: former senior VP at Disney before joining Hulu as senior VP of
advertising.
• Andy Forssell: former Army captain and Harvard MBA who spent a decade as VP at
Siebel Systems before being named Hulu’s Senior VP of content acquisition and
distribution.
• Tom Fuelling: CFO with more than 20 years of experience at Sega, Price Waterhouse
and Liberty Media, among others.
• Chadwick Ho: General counsel and Harvard grad who came to Hulu after serving as VP
of MySpace and legal counsel for Fox Interactive Media.
• Johannes Larcher: Senior VP of International, who served as GM of Overture, and VP of
International at Friendster. 18

Despite the high stakes, the big names, the big diplomas and the offices in New York, Chicago,
L.A. and Beijing, Hulu leaders have insisted since the beginning that their venture was and is
still only a start-up and not "Big Media."19 Nevertheless, by September of 2008, Hulu had
become the sixth-most watched video content provider on the Web, with 142 million reported
streams and 6.3 million monthly visitors, surpassing already-established brands such as ESPN
and MTV. By the time the 2008 presidential elections rolled around, the less-is-more approach
had Hulu surpassing even some of its parent companies. Qualman notes that 14.3 million
viewed the first "Palin Skit" by Tina Fey on Hulu, while only 10.2 million viewed it the Sept. 13,
2008 episode of Saturday Night Live on television. An important caveat, Qualman says, is that
Hulu's numbers benefit from allowing viewers to watch it more than once.

The unconventional “start-up” continues to build momentum. As Eugene Wei, Hulu's senior VP
of audience put it on his blog20 when the Web site shed its Beta label after an 18-week trial run:
"We're not anywhere near the finish line. It always feels like the to-do list outweighs the
completed side of the ledger. But if it didn't then it wouldn't be that interesting a challenge and
most of us probably wouldn't be here."

17
As of August 2010. From Hulu.com’s Media FAQ section.
18
As of August 2010. From Hulu.com’s About section.
19
Wei, E. (2008, March 12). Hulu Launches. Retrieved Aug. 1, 2010 from Remains of the Day:
Eugene Wei’s Personal Weblog:. http://www.eugenewei.com/mtweblog/archives/003342.html
20
The blog is called “Remains of the Day.”


Factors in Success
It seems strange to discuss the factors that contributed to the rise of Hulu when the launch of
subscription-based Hulu Plus has critics heralding the site’s downfall.21 Still, the co-venture of
NBC, ABC, and Fox deserves its due. This site sought and found the Holy Grail of internet video
streaming: free, legal, high quality content that makes a profit (in theory anyway).

Monthly, Hulu sees over 11 million unique visitors. During April 2010, the site reported 1.2
billion video views.22 What put Hulu in the position to reach so many and build such an
accomplished video streaming site? Among the many reasons for the site’s success, the five most
important factors are: 1) its access to a wealth of high-quality content; 2) its ability to offer that


content for free; 3) its distinctive approach to advertising; 4) its easy-to-use design; and 5) its
emergence during a time of rising cable costs and economic instability.

To explore the initial foundation for Hulu’s success, let’s first take a look at the online music
industry and then turn our attention back to streaming video. The online community clamors for
free content. Unfortunately, much of what is available in that price range is either stolen or low
quality. Free entertainment content like music is often pirated and shared illegally through file
and bit sharing programs (such as BitTorrent) or streamed in a very limited way from Web sites.
For a while, television programs and movies were protected from widespread pirating because of
the large size of such files and their slow download time. This is less the case today thanks to
high internet speeds and better file compression, but in the end, it is still quite a hassle for most
people to download long, high-quality video files.

Legal issues have permeated the music-sharing community. Pirating and illegally distributing
music are killing the record industry, but giving folks an alternative to access free music without
stealing may stave off total annihilation. Pandora Radio is an example of one personalized
internet radio service that has struck a balance by allowing users to listen to streaming music
legally and for free (though they are limited by how many hours of content they are allowed to
listen to each month). Advertising supports the free service, but you can also choose to pay a
_____________________________
21
Bloggers Jason Adler ("Why Hulu will Fail in 3 Months") and Daniel Nations ("Does Hulu for
iPad have fail written all over it?") are just two of many who are sensing blood in the water since
Viacom pulled its content from Hulu™ and the site launched it’s first pay-based service.
22
While the number of video views and the amount of time users are spending watching videos is
increasing, the number of unique visitors seems to be holding steady rather than increasing
according to recent stats posted by ComScore (ComScore May 2010 Stats - YouTube Hits All-
Time High, Hulu Viewer Numbers Plateau").
subscription fee and enjoy ad-free, higher quality, unlimited listening. The pay service was added
in the wake of a “royalties crisis” in which record labels demanded royalty payment from
internet radio sites.23

Pandora Radio and music-sharing are relevant to Hulu’s success in that Hulu did not have to face
many of the challenges intrinsic to streaming licensed content. Thanks to its big-name backers,
Hulu was born with the silver spoon of access. NBC, ABC, and Fox seeded the venture with hit
programs like The Office, The Simpsons, and Prison Break, while also providing some episodes
of older classic shows like Buffy the Vampire Slayer.24 In short, Hulu can provide legal, free,
unlimited access to certain desirable content. It can be a lot of trouble running peer-to-peer file
sharing or bit torrent programs to get the TV shows and movies you want. You may end up with
slow download speeds, poor quality or corrupted files, and the content you want may be difficult
to locate. To top it off, you are most likely committing an illegal act and violating copyright in


some way when you obtain content in this manner. Hulu allows users to sit down anytime they
want and access the content they seek instantly and without damaging their karma or their
computer.

One way Hulu is able to offer all that free content and still bring in a profit is through its
advertising revenue. This revenue is generated through a unique advertising plan following CEO
Kilar's “less-is-more approach." While the model is unusual for internet users, Kilar considers
this approach a return to the advertising-to-content ratio seen in the 1950s.25 Add to this the high
ability of advertisers to target particular users based on Hulu’s user-identified advertising
preferences and you have a potentially powerful combination. Hulu’s original business model
delivered customization into the hands of members and targeted advertising into the hands of
investors.

Unfortunately, the balance between what works for the users and what works for the financiers
seems to be in jeopardy. As a new subscription-based model is introduced into the mix, many
users are worrying about where they stand on Hulu’s priority list. In the article "Hulu's a
Towering Success--Just Not Financially,” published earlier this year in Advertising Age,
_____________________________
23
For more information about the royalties crisis, check out Pandora Radio™ Founder Tim
Westergren’s blog: “July 2009 Important Update on Royalties.”
24
In a blog post to the selected users invited participate in Hulu during beta testing, CEO Jason
Kilar mentioned the early content they could enjoy: "October 2007: Beta Testing Begins for
Hulu.”
25
In an article dated November 24, 2009, Michael Learmonth of Business Insider discussed
Hulu’s growing success and Kilar’s attitude toward advertising: “Hulu Nation is Growing--And
Fast.”
Michael Learmonth, Senior Editor, discussed the various influences Hulu operates under right
now: 1) its commitment to its user experience, 2) pressure from advertisers to remain free as a
“testing ground” for ads, but to increase the number and duration of said ads, and 3) pressure
from its parent companies to institute fee-based services. According to Learmonth, however you
slice it, “90 percent of Americans pay for their TV.” While TV is only partially ad-supported,
Hulu began as a solely ad-supported venture. To fill in the financial gap and help pay for the
ever-increasing infrastructure costs, Hulu has launched Hulu Plus.

It’s a tricky business introducing fees or more advertisements into an environment like Hulu. The
company itself proclaims its philosophy of ease of use and outstanding user experience as a
major contributor to its success (just pay attention to the number of times “easy-to-use” is found
on the site). Segregating paying members from non-paying, changing content distribution, or
adding more advertisements runs the risk of alienating existing viewers and adding clutter to a
very simple user interface.


The site is designed to be a marriage of traditional and web TV. The player avoids the
cumbersome clutter of ad-heavy web pages and opts for a sleek, simple, intuitive design.
Entering Hulu’s domain the viewer simply sees a giant banner of newly added shows and movies
with a button reading:“Watch Now.” There are no impediments to viewing: neither registration
or installation of programs are required. The user experience is seamless. Browsing is guided by
clear categories like “Channel,” “Most Popular,” or “Recently Added.” The site provides the
opportunity to partake of the product whether you are a web-baby or a techno-geek. In his review
of the site’s design, “How Hulu's Design Gets it Right,” Matt Vella, Staff Writer for Business
Week, calls it a “contrast [to] other streaming television services, from ABC, CBS, as well as
Fox and NBC's own branded sites [which are] advertising-heavy, often work poorly, and are
generally more complicated to navigate.” As people begin to look for their favorite shows online,
it may be that many TV watchers are hoping for an easy transition. If this is the case, then a site
that is simple and less of a culture shock should do well in the early stages of the internet
television movement.

Calling the move from television to web-based video a transition at this point is still a bit far-
fetched. As Michael Learmonth told us earlier, most Americans are still paying for television
subscriptions. Even so, a recent study by Retrevo “shows that the majority of Americans — 64
percent, according to the survey results — get at least some of their TV content online.”26
Because of the aforementioned high quality content, unique advertising model, and ease of use,
Hulu was in an especially good position to become a major provider of online television and
movies when it launched to the public in 2008.

High unemployment rates, inflation, and tanking investments combined with ever-increasing
cable costs over the last decade have taken a toll on consumers. The Bureau of Labor and
Statistics released a report in 2008 stating that cable costs had risen alarmingly since 1996, at
almost twice the rate of inflation.27 According to Julianne Pepitone, Staff Reporter for
CNNmoney.com, “The average digital cable customer already pays almost $75 a month.” Rising
costs of high-tech infrastructure, loss of advertising revenue, and increases in competition mean
that cable companies are hiking prices by around 5 percent annually. 28 These factors create a
climate ripe for a provider of good streaming television and movie content to reach out with a
user-friendly alternative that might cut down on your cable subscription costs. For the moment,
Hulu fills that need nicely.

_____________________________
26
This quote was taken from “TV Viewing’s Shift to the Web [Stats]” written by Jolie O’Dell in
May of 2010 and hosted by Mashable.


While the original Hulu business model, advertising set-up, site design, and timeliness have
worked their magic for the last three years (the site grossed $12 million29 and boasted 43 million
monthly users by the end of its first year30), numbers of unique visitors have recently hit a
plateau. Pressure from multiple directions has lead the company to institute a pay-based
subscription service, and the “less-is-more” advertising ideal is being threatened. In this time of
turmoil, Hulu could easily drop from its pedestal. Decisions the site makes now could lead to a
new, exciting way to provide people with online television and movies, or could leave Hulu’s
previous success in ruins.

_____________________________
27
Matt Richtel wrote about the issue of rising costs of cable in his May 2008 New York Times
article, “Cable Prices Keep Rising, and Customers Keep Paying.”
28
Julianne Pepitone discusses the findings of recent research by Centris on cable costs as well as
the looming terror cable providers feel concerning internet-based video services in her January
2010 article “Why cable is going to cost you even more.”
29
Newsweek’s Daniel Lyons wrote of Hulu’s early financial success and superb content quality
in his February 2009 article, “Old Media Strikes Back.”
30
CEO Jason Kilar blogged about Hulu’s year one stats in December of 2009: “Thank you for a
very big 2009.


The Puzzle of Online Advertising on Hulu
Online video revenue is targeted to pass $1.3 billion in 201031 and double to $3.5 billion by 2014.32 It's
younger cousin, mobile television, is estimated to triple revenues and reach $1.2 billion as
well.32This may sound like a sea-change in the industry, but it is a mere financial pebble in the
$70 billion32 television advertising ocean. Small but mighty? Yes, but the battle for advertisers
is currently being viewed as a direct battle between buttoned-up, conservative parent companies
(the networks) and it's rebel off-spring (Hulu.com). And today, despite, or because of, the smaller
ad numbers, Hulu is in great danger of corporate infanticide due to potential success and scary
new ideas.

Hulu.com is struggling to solve the Rubix cube of on-line advertising, with its jumbled sides
intermingling the needs of dysfunctional parent companies; advertisers looking for guidance;
audiences demanding personalized, relevant content; and social media norms that haven't
penetrated corporate television. Media advertisers slowly twist and turn the components of the
puzzle, yet none of the hypothesized combinations have led to a winning solution. And in the
meantime, corporate television executives and pundits have begun to broadcast their doubt that
the riddle will ever be answered. The circumstances are less than ideal to devise new-thinking
possibilities available for online television advertising.

The problem being currently addressed is properly monetizing advertisements. In an interview in
Ad Age, senior VP-innovations director, Tracey Scheppach, with industry thought-leader VivaK,
points the finger at monetizing advertisements. "The ad formats we are using are not properly
monetizing the value of the value of the content,” she explained. "We know that as content
becomes more digitized that the ad formats have to work harder so the ads continue to provide
value."

VivaKi, a major player on the world stage of communications & media buying, is determined to
bring together the pieces of the puzzle. The mammoth firm slowly began to compile data points
in order to crack the Hulu ad code. The result was the simply named Ad Selector, which allows
the viewer to select their "preferred ad" out of a line-up of desperate brands vying for 20-seconds
of attention.
_________________________
31
Cohen, J, July 13, 2010 Will Hulu’s ‘Ad Selector’ Become Online Video’s Advertising
Standard http://news.tubefilter.tv/2010/07/13/will-hulus-ad-selector-become-online-videos-
advertising-standard/
32
Apple, Google and Hulu Racing to Crack Digital Ad Code diane-mermigas July 06, 2010
http://seekingalpha.com/article/213224-apple-google-and-hulu-racing-to-crack-digital-ad-code


The deceivingly simple solution was the culmination of a 16-month collaboration between big
players Allstate, Applebee's, Capital One, Nestle Purina, publishers AOL, BBE, CBS Interactive,
Discovery Communications, Hulu, Microsoft Advertising and Yahoo!. The team spent over
8,000 hours evaluating 29 ad models and 43 different executions. In the 178-page white paper
describing the project, VivaKi reveals that, "Overall, the collective team spent 230,000 hours
with over 25 million consumers to determine that The Ad Selector as the optimal ad model for
advertisers and consumers." This is 26.23 years, collectively. 33

The Ad Selector positions itself as the harmonized answer for all constituents. Advertisers would
only pay when their ad was selected; publishers would get a much higher ad rate than a typical
pre-roll. And by allowing viewers to choose relevant commercials, Hulu would provide what
consumers were demanding: "The ideal online video ad experience" which "empowers
consumers and respects their time." And according to Ad Age (via VivaKi themselves), the
parent companies would be happy: it is suggested that adding selection could generate millions
of new spending for the online Television medium.

VivaKi seems to have flooded the project to a curious and somewhat enamored media. The
influential white paper boasted active innovation, an urgent response and the lure of lots and lots
of money:34

"This project began as a passionate plea for industry change and quickly transformed into
a plan of accelerated action; action through pooling resources and being fluid in idea
exchange and collaboration. "

"Consumers told us loud and clear that the Pre-Roll was old, stodgy and intrusive."

"Compared to our Pre-Roll industry benchmark, Ad Selector increased click-through rate
by 106 percent and increased recall by 290 percent!”

Yet, the triptych of promises has still to bare out and the puzzle is far from being complete.
Leading research group, Parks Associates shows that U.S. broadband households don't care
about target advertising. This is of course, in direct opposition to the massive data dig provided
by VivaKi. What this analysis is also missing is the promises or assumptions made during the
VivaKi study versus the very broad question posed by Parks Associates. Content of the
advertisements is also not discussed in the figures. The word “targeted” has a variety of
_________________________________
33
Kaplan, D May 23, 2010"VivaKi: Letting Users Pick Video Ads Could Unlock $100 Million
In Spending" http://paidcontent.org/article/419-vivaki-letting-users-pick-video-ads-could-
unlock-100-million-in-spendin/ Retreived July 30, 2010
34
http://www.vivaki.com/SMG081_full_report.pdf


meanings, especially in the customized, collaborative world of social media. Choosing between
Audi and Gerber isn't much of a choice if you are a car-less, childless viewer. The increased
demand for personalized content jumbles up the rubric once again. "Indifference indicates
consumers can be won over by new advertising strategies, provided these messages are designed
well, with truly relevant content," commented Heather Way, research analyst for Parks
Associates in an interview with webpronews.com. "Also, the younger age groups are more
receptive to the concept of targeted advertising, and advertisers place a premium on the ability to
reach these demographics."35

For now, the stable of Hulu advertisers continue the long-form process of mixing and matching
logo bugs, end cards and branded slates provided by the Hulu marketers. Most content is straight
from television, with bonus links to static websites. Clorox, surprisingly, has begun a campaign
of infomation-based ads, demonstrating how the product can be used, including a recipe. Surely,
this is just the first wave of interactive, engagement advertising.

______________________________
35
Sachoff, M May 19, 2010 http://www.webpronews.com/topnews/2010/05/19/online-video-ad-
revenue-to-surpass-13-billion


Stiff Competition
On June 29, 2010 Hulu unveiled “HULU Plus,” a subscription service promising its customers
access to more TV shows in more platforms, including the new iPad, for a nominal monthly fee.
Quincy Smith, a former chief executive of CBS Interactive and a founding partner of Code
Advisors said in an interview that “Hulu Plus conveys the opportunity of more platforms, more
eyeballs and more ways to monetize. And it certainly concedes that the future of TV is video, not
just on-air or on-demand, but also online and on mobile.”36 Many companies besides Hulu want a
piece of that future. Who are they and what are their chances?

Last month, The Seattle Times featured an article about upcoming fierce competitors of Hulu.
Among them are big players and startups, even web “pirates,” trying to grab some market share
of the lucrative online-video market. Let’s take a closer look into the current rivals on the
battlefield known as the online video market

YouTube - With more than 1 billion videos watched per month,21according to ComScore,
YouTube was accessed by 43 million unique visitors in the United States in May 2010, up from
38 million the month before. The user base is broad in age range, 18-55 and evenly divided
between males and females. This website’s new feature, Leanback, allows users to watch videos
tailored to their interests based on their prior YouTube browsing experience. This application
automatically plays preferred content as soon as the user visits the site. The videos are played in
full screen and high definition. There is no need to click, search, or browse for content unless
desisred.

Hulu competitors, such as YouTube, only account for percent of all online video views. The
other 72 percent watch through preferred media websites, mobile apps and social network sites.
With this knowledge, the Hulu Plus business model is moving forward letting users watch digital
content via internet connection, WIFI, and 3G using personal devices such as iPhones, Android
phones, iPods, iPads, Play Station 3 systems, Samsung Internet TVs and Blu-ray players.

Rao, L. (2010). TechCrunch. Retrieved 8/12/2010, from
2136

http://techcrunch.com/2010/06/24/comscore-youtube-reaches-all-time-high-of-14-6-billion-
videos-viewed-in-may/


Netflix -- (NASDAQ: NFLX) Netflix is America’s favorite source of movie streams for high-
definition television. The user base is broad in age range, 18-50+, 44 percent of which are male
and 56 percent female. In June 2010, ComScore conducted a poll based on plain web traffic of
unique individual visitors showing that Netflix had 20.2 million visitors compared to Hulu’s 19.7
million. For now, Netflix CEO, Reed Hastings, declares he is “not to be taking Hulu Plus too
seriously” and that it is “too small to matter" even though he admits that Hulu Plus’s archives of
more than 2,000 episodes from 120 complete TV seasons makes it a “direct competitor,”
according to Light Reading Cable.37 Shares of Netflix Inc. booked a new 52-week high in August
2010 by trading above $133.8 due to almost a billion dollars deal with EPIX.38 Paramount, MGM
and Lionsgate movies start streaming September 1, 2010. Netflix reported second-quarter net
income of $43.5 million, or 80 cents per share, up from $32.4 million (or 54 cents per share) a
year ago.
_____________________________
37
Baumgartner, J. (2010) “Netflix CEO:Hulu Plus Still ‘Too Small to Matter’. Lightreading.com.
Retrieved 8/12/2010, from http://www.lightreading.com/document.asp?
doc_id=194772&site=lr_cable
38
Operated by Viacom, MGM, and Lionsgate.


Boxee - Boxee, Inc. created a cross-platform freeware home theater PC platform which
assembles Web and users' digital content -- but no longer Hulu streams -- in one free application.
Marketed as the first ever “Social Media Center,” Boxee enables its users to view, rate and
recommend content to their friends through social networks like Facebook, making it a potential
game changer. So far, Boxee hasn't made any money, but the company plans to generate revenue
by taking a cut on sales of copyrighted content to customers.39 The company received two rounds
of funding totaling $10 million. Coming soon is the Boxee Box made by D-Link that lets you
watch TV shows and movies from the internet on your TV without using a computer.

Veoh - Veoh streams mostly clips of TV shows, movies, and music for free along with a few
episodes from other sites, including Hulu. With Veoh TV, a downloadable application you can
easily find programs that you are looking for and then watch them directly through the Veoh
interface. ComScore estimates that 14 million people a month still visit the Web site even though
they filled for bankruptcy last February due to a copyright litigation with Universal Music
Group. In March 2010, Qlipso bought the assets of Veoh, the Web’s 10th-largest video portal.
This acquisition has already created exciting results. More than 2,000 new users per day are
registering for multi-user video viewing with Qlipso, while more than 10,000 daily visitors are
sampling the Qlipso experience, 20 percent of who never used Veoh before.

Joost - Joost is an internet TV service, created by Niklas Zennström and Janus Friis (founders of
Skype and Kazaa). The site collects and curates thousands of videos to provide a selection of
music, TV, movies that appeal to people everywhere. The user base age range is 13-34, with 53
percent being male and 47 percent female. In May 2010 Comscore reported this application as
the top video ad network in terms of their actual reach with 35.2 percent penetration of online
video
_____________________________
39
Cohan, P. (2010) Daily Finance, Retrieved 8/13/2010, from http://srph.it/aWWxAU


viewers. On November 24, 2009, Adconion Media Group announced that they would be
purchasing the company's assets for an undisclosed amount.

Newcomers
HBO Go - HBO Go proclaims “It's HBO. Anywhere”SM and plans to expand to more platforms
so subscribers will gain instant unlimited access to over 600 shows, including HBO® Original
Series, documentaries, blockbuster movies, sports and more in High Definition. Additionally the
subscription will bring new features and exclusive behind-the-scenes extras. This service is
currently free with an HBO subscription and it allows you to watch HBO shows from your
laptop, desktop, cellphone, or Ipad and to create personal “watchlists” to access your favorite
HBO shows automatically.

Google TV - (NASDAQ: GOOG) Google TV makes it easy to access videos and TV episodes
that are available online using one single interface. You can search videos and TV episodes that
are online on various websites including Netflix, YouTube, cable listings, etc. This means that
instead of jumping to your computer to see a free episode of your favorite show on Hulu or a
network website, then checking your TV cable listings, you can search everything at once and
choose which method you want to use to view the content. Google TV will come already stocked
in some new televisions in the fall of 2010 and consumers will have the option of purchasing a
box for around $300.0040 to hook up their current set.

Competing Business Models
Amazon.com, Inc. - (NASDAQ: AMZN) Amazon has a video on demand service that is only
available in the U.S. It offers television shows and movies for rental and purchase and sells
DVDs and downloads of recent television series episodes. Currently, downloaded videos cannot
be transferred to mobile devices such as iPods, limiting their functionality. The user base is
broad in age range, 18-49, and evenly distributed between male and female. A company press
release announced financial results for its second quarter, ending June 30, 2010 as up by 41
percent to $6.57 Billion.

Apple Inc. - (NASDAQ: AAPL) Through iTunes and Apple TV, users are able to buy or rent
movies or TV episodes and start watching them in minutes. Content is available in standard or
high definition and can be viewed on personal computers, iPhone, iPad, iPod touch, or television
via Apple TV. The user base is broad in age range, 18-49, 44 percent are male and 56 percent are
female. Apple generated $15.7 billion in sales and a profit of $3.25 billion during the company’s
fiscal third quarter. The stock price is $249.10. Itunes has 2.9 percent of stock price value and
Apple TV has 1.3 percent of stock value.
_____________________________
40
Dish Network assumes Google TV boxes will be around this price.


Staying Ahead of the Game

Hulu vs. Cable
While most Americans can’t picture a world without cable television, they still dream of a utopia
in which astronomical cable bills are outlawed. With the average American spending $75 or
more on cable each month, the average annual cost per subscriber ends up being around $900.
This is on the conservative side for those who enjoy premium channels like Showtime or ESPN2.
Pajiba blogger, Dustin Rowles, claims to spend around $130 per month on his cable bill. His
personal cost-benefit analysis comes out strongly in favor of ditching cable and watching shows
streaming online or purchasing the content through iTunes. Says Rowles of iTunes season
passes, “If I purchased all the shows that I regularly watch, I’d only spend $930, which is $600
less than I normally spend per year for cable. And, for $600 less, I’d have complete portability I
could watch the show on my iPhone, on my desktop, or on my laptop.”41

Hulu visitors enjoy a large number of popular programs for free, and with fewer commercials.
Those who purchase Hulu Plus get access to even more shows for only $9.99 each month. If
Hulu Plus became the sole paid subscription for television programming for the average cable
subscriber, he or she would save around $780 per year. You’d think this would be a hard deal to
pass up. Why, then, are many people keeping their subscriptions?

There is a definite shift occurring in how we view television. According to the study by Retrevo
mentioned earlier in this paper, 64 percent of people in the sample watch some of their television
content online. The number is much higher for those under the age of 25. This study illustrates
the growing familiarity with receiving television content via the internet. Despite the increasing
number of online television viewers, only 5 percent of people in the study watched all of their
television content online. It is possible that consumers are well-aware of the cheaper option Hulu
Plus presents, but are also aware that the service has several key obstacles to overcome in order
to cement itself as an alternative to cable TV. Among these obstacles are streaming quality
issues, lack of premium channel content, limited live broadcast access, and difficulty obtaining
content through different platforms.

In August of this year, Ian Hamilton, Technology Reporter for The Orange County Register,
posted a report entitled “5 Huge Hulu Plus Problems.” In this critique, Hamilton mentions that
Hulu has not acquired the rights to offer the Hulu content library in its entirety on different
devices. For now, Hulu Plus subscribers who want to watch shows on mobile devices or their
_____________________________
41
Dustin Rowles’ January 2010 blog, “A Pajiba Special Report: Should You Give Up Cable
Television?,” encourages readers to drop their cable subscriptions and stick it to Time Warner
and Comcast by giving themselves more time to watch the shows they love for less money.


PS3 will not be allowed to access all of the content available to them on the Web. Hamilton also
points out that paying for Hulu Plus does not guarantee that you will receive shows the moment
they air, or even several days later. Subscribers still have to wait for shows to be posted (which
can take up to one week). Hamilton argues that Hulu has shown it is capable of live streaming
with its coverage of the June 15, 2010 Presidential Address and other events. Why can’t the site
offer viewers the same coverage to we are used to receiving from cable providers?

Compounding the displeasure of having to wait for content, Hulu Plus subscriptions do not cover
the premium channels’ shows and special productions. Cable providers offer packages that allow
the viewer to access programming from Showtime, HBO, and high-end sports channels. The lack
of this type of content in the Hulu Plus library means that many premium channel watchers and
fans of live sporting events in particular will keep their cable subscriptions as long as this content
is exclusive. Hulu Plus, in order to siphon more viewers away from cable television, will need to
focus on offerings that meet the standards of premium channel subscribers and sports fans.

Beyond this, Hulu needs to think ahead to more mobile offerings through multiple platforms like
the iPhone, iPad, Samsung HDTVs, and Blu-ray players to be able to keep competitive. Hulu
Plus does some work to this end, but how about some added value? How about mobile alerts via
text messages sent to your phone the minute your favorite shows become available for viewing?
How about receiving a link through your email with “local” discounts. Hulu also need to expand
as time goes on. Plans for the service to become available on Sony and Vizio TVs and Blu-ray
players by the end of the year, as well as the Microsoft Xbox 360 and Sony PlayStation3 gaming
consoles show a great deal of promise. The trick will be to continue to maintain a very sleek and
simple interface. Simplicity and higher video quality are very important in the market.

What does Comcast-NBC mean for Hulu?
Many observers of the technology and communications game see the impending Comcast-
NBC/Universal deal as thebeginning of the end for Hulu despite many reassurances to the
contrary from the cable giant. Cable is a $22 billion dollar business, and when businesses like
Hulu are putting out content for free which otherwise would be accessible through a subscription
to, say, Comcast, pundits are right to at least suspect the writing is on the wall for Hulu as we
know it if Comcast begins calling the shots. Furthermore, if one examines Comcast’s rap sheet
when dealing with internet ventures--the BitTorrent case comes immediately to mind-- those
fears are more than just paranoid ramblings, they may well be founded. Fears range from
Comcast influencing Hulu’s content to Comcast favoring its own cable ventures in detriment of
Hulu to Comcast simply “kneecaping”42 Hulu’s appeal to consumers by weighing it down with
all sorts of conditions and rules.
_____________________________
42
http://arstechnica.com/tech-policy/news/2010/05/senate-antitrust-leader-fears-comcast-will-
kneecap-hulu.ars


Democrats in Congress, including U.S. Sen. and former NBC employee Al Franken 43 have
decried the merger as another step toward a monopolization of information access in America.
Sen. Herb Kohl, a midwestern Democrat like Franken and, also like Franken, a man experienced
in dealing with broadcasting rights and monopolies (the Kohl family owns the Milwaukee
Bucks’ NBA franchise) demanded that any NBC/Universal-Comcast deal include the provision
that the resulting conglomerate sell its Hulu stake within a year.44 With Hulu talking about going
public with an IPO on the stock market, the question is whether it is wise to buy stock in a
company that may be punished for doing well by its parent company (Comcast), if doing well
means fewer people will pay for a cable subscription.

Can Social Media Save Hulu?
“Social Media” has been quite the buzz phrase for the last few years thanks to the rise of sites
like Myspace, Facebook, and Twitter. Facebook currently boasts over 500 million active users45
and Twitter had over 28 million unique visitors in June of this year.46 The success of these
platforms has everyone scrambling to incorporate social networking into their business strategy.
Internet television providers are no different. They are making great strides in fusing social
media with devices and web platforms. How Hulu is faring in this regard and how it can
improve its social applications could be a key factor in determining the future of the site.

Hulu began integrating social strategies in March of 2009 with Hulu Friends, which allows
members to create a profile and connect with other Hulu users. Hulu Friends gives individuals
the ability to search their other social networking platforms as well as the various email services
they use to find connections in a quick and easy manner. Once the Hulu network is created,
friends can leave each other notes, share and discuss content, and see each others’ “scorecards.”
The scorecard lists how many videos a user has watched and rated. “Meanwhile, the Activities
tab on your friends' and your profile pages offers an in-depth look at everything from viewing
history and subscriptions to reviews, ratings and discussions,” says Hulu.47

While creating connections between members is a great step toward building community and
_____________________________
43
http://arstechnica.com/tech-policy/news/2010/08/sen-franken-and-fcc-blast-verizongoogle-nn-
proposal.ars
44
http://paidcontent.org/article/419-senator-wants-comcast-to-sell-hulu-stake-as-merger-
condition/
45
More information on Facebook statistics can be found on their website at
http://www.facebook.com/press/info.php?statistics.
46
The statistics on Twitter’s July 2010 unique visitors were gathered from
http://www.compete.com.
47
The description on the Friends page on the Hulu site describes the many ways you can interact
with your network.


sustainability, Hulu needs to go further. Namely, they need to increase interactivity within the
site and across other social media platforms as well as build a presence in the “real world” with
better ad tailoring. It seems Hulu is aware of the necessity of involving members and increasing
interaction, but it has poured a large part of its social media strategizing into its original series “If
I can Dream.” This web-based reality show, produced by “American Idol” co-creator Simon
Fuller, features young artists hoping to make it big in Hollywood. In his report “Premiere:
Hulu’s Social Media-Infused ‘If I can Dream,’” Mashable Digital Entertainment Reporter
Samuel Axon mentions that “The cast’s Twitter, Facebook, and Myspace accounts are linked and
chock full of content. The music they’re (supposedly) listening to will stream on iheart radio.
Short clips will be posted on Hulu every day.”

While hard data on viewership have not been released, Web Series Network publisher and
blogger Rich Mbariket, sees the venture as a disaster. According to his August 2010 post Hulu
Web Series 'If I Can Dream' Has Done Everything This Season To Get An Audience, But Why
Is No One Watching?, “with all the high profile marketing, celebrity cameos and ad campaigns,
Dream has a disappointing 7,500 + fans on Facebook and 9,600 + followers on Twitter.” Hulu
continues to push for more buzz around the series by employing bloggers and media agencies.
Why is Hulu focusing so much energy on one “original” series based on a very unoriginal
premise, when they have a library of shows with built-in fan bases?

Television shows have been the basis for many online forums and communities. Fox’s forum
dedicated to “House” contains thousands of posts and conversations about specific episodes,
characters, and the series as a whole. LOSTTalk.net is a community where fans gather to discuss
the many confusing facets of the ABC show “Lost.” In 2002, the site AfterEllen.com sprung
up.48 Basing its name on one of the biggest television and media events of 1997—Ellen
Degeneres’ coming out announcement and her subsequent outing of the title character of her TV
show, “Ellen”—the site hosts a community along with blogs and videos about various television
series and aggregates news related to lesbian and gay characters in films and on television. These
are just a few examples one finds when looking for television-related communities on the web.
The AfterEllen model in particular could generate some much-needed activity for Hulu.

Hulu streams shows and movies that have lots of diehard fans that would be more than willing to
create specialized groups for real-time discussions about particular episodes or particular movies.
The site might want to create a better arena for discussion and chats than the current discussion
and comments sections they build in for shows—which are very unassuming and not very

_________________________
48
To learn more about the creation and evolution of AfterEllen.com, visit the site’s About
AfterEllen page.


engaging. The social media aspects of the site are under-utilized, member-created content is not
showcased and there appears to be little marketing to the members as a group encouraging them
to connect with one another and share about shows.

Moving Hulu Friends to a more noticeable area of the site and marketing the feature would
probably boost the site activity and give people another reason to join and to keep coming back
to Hulu. Another tactic worth trying that may result in adding value to the site and in building
customer loyalty is to allow blogging, or at least micro-blogging. Given the capability, Twitter
users would most likely tweet from the Hulu site about what they are watching. An application
called Twuulu was even created to meet this need before Hulu shut it down with a cease and
desist order. Why not incorporate Twitter and Facebook sharing into Hulu? Better yet, why not
include these features along side a newsfeed (as AfterEllen has done) that aggregates articles,
blogs, comments, and other mentions of television shows and movies on Hulu show pages?

Hulu is currently facing competition from software like Boxee, the self-proclaimed “social media
center,” that offers a solution for watching streaming videos directly on your television set while
also accessing your social networking feeds and pushing out content suggestions to your
Facebook and Twitter connections.49 By developing consistent, wide-reaching social networking
strategies that play to their strengths (i.e. their large content library and built-in fan bases for said
content) the Hulu team may continue to exist as a leading provider of streaming video. Hulu
needs to take advantage of their edge while it still exists and utilize the site’s access to high-
quality content in a way that encourages members to be more active by making valuable
contributions of their own and by building the Hulu community and connecting it with other
social networks.
Furthermore, to improve the chances for the site to stay relevant and successful, the Hulu team
needs to take steps to live up to their claim that they offer personalized, user-influenced
advertising. Members are supposed to be able to answer questions pertaining to their habits and
needs that will inform the “Ad Tailor” and create a unique ad experience. Unfortunately, the
experience is still largely based on what Hulu’s advertisers want us to see. No matter how many

_____________________________
49
In his April 5, 2007 “About” post, Boxee Founder and CEO Avner Ronen, mentioned the
company’s status as the “developer of the first ‘social’ media center.’” In a later blog post on the
Boxee website, Andrew Kippen, Vice President of Marketing, mentioned the updated software’s
ability to manage Facebook and Twitter in the Boxee feed (“NHL + Updated Beta,” April 2010).


questions a member answers indicating he or she does not need new car insurance and no matter
how many times the user clicks on the ad stating that it is “not relevant” to them, viewers will
still occasionally see an ad for car insurance.

Jessica Roberts, MCDM student at the University of Washington, wrote of some possible ways
for Hulu to mold their advertising model into one that may prove effective in the long run in her
blog post “Hulu’s Chance to Create a Community and a Profit” in November 2009:
“By embracing social media values and revising the relationship between advertiser and viewer,
Hulu could create an elite advertising destination, focused on early-adaptors and creative
members who thrive on the chase to ‘break’ information. This transformation could be shaped in
several ways: 1) provide “first-view” ads which customers could rate, if they wish; 2) “first-
view” ads that have different standards and aesthetics than the traditional ads, using edgier, non-
traditional ads from organizations like Zooppa; 3) targeted ads to the Hulu community, with
rewards or coupons because they are an ‘elite’ group watching Hulu. The technology to capture
viewing statistics allow[s] Hulu to target hyper-local advertisers that would otherwise not have
access to TV advertising.”

Perhaps Hulu should consider focusing on providing ad space to local companies. Imagine
watching an episode of Lie to Me one evening and, based on your answers to previous questions,
your profile information, and your location, you receive a coupon for a restaurant down the street
or a grocery chain that is nearby. Especially considering that Hulu Plus is a subscription service
that includes advertising, it is in Hulu’s best interest to create a very relevant ad experience from
here on out. Thinking local may save Hulu from cultivating weary viewers who do not want to
pay for ads they have to watch repeatedly and that have nothing to do with their real-life
community.

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