The Story of Hulu


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This paper was my first group project for my Evolutions and Trends in Digital Media at the University of Washington in July, 2010.

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The Story of Hulu

  1. 1. The Story of Hulu Page 1 The Story of Hulu | Andrea Lovan | Sebastian Moraga | Ivan Orbegozo | Jessica Roberts The Life and Times of HuluBill Watterson, the creator of the comic strip Calvin and Hobbes, once drew his strips leadcharacter wanting to write his autobiography. When Hobbes, the strips co-star, reminded Calvinhe was only six years old, the boy shrugged, replying "Ive only got one sheet of paper" (2005).1Writing about the history of Hulu also seems like an exercise in minimalism as futile as thatboys one-page booklet.To hear the leaders of 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 ErikQualmans book Socialnomics, referring to the smaller, precisely-timed chunks of ads foundthroughout Hulus programming. The bite-sized commercials help keep advertisers happy withhigher ad recall and viewers delighted with fewer interruptions of their shows. 2Hulus success is built on a simple concept: provide Americans the ability to watch cable andnetwork TV shows as well as movies legally and for free. The mission has been self-describedas delivering the "worlds premium content, when, where and how you want it," providingviewers with a comprehensive selection of full-length movies and trailers, current and archivedTV shows, and “extra” web-exclusive content. While at it, Hulu has changed the way peoplenormally would view said content, with innovations ranging from timing the commercial breaksto letting viewers choose when and how to view them.3Fans of YouTube have likely encountered a pink bar across the screen stating that certain contenthas been removed due to copyright violations. Hulus had no such copyright issues: content camefrom founding partners, Fox and NBC Universal.4Popular shows like The Office, The Simpsons and Heroes were part of Hulus first batch ofprogramming, along with some older classics, such as The A-Team.5 Such content came with a1 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, 1634 Hosch, W.L., Hulu, (2010). In Encyclopaedia Britannica. From the Online Edition:
  2. 2. The Story of Hulu Page 2built-in fan base from its days on regular TV. Kevin McGurn,6 Hulus vice-president of nationalsales explained in Socialnomics, most of Hulus content at the beginning was professionallyproduced and already had an audience. "Things on the Web dont have to be an instant success,"McGurn said. "In fact, they generally arent unless they were popular somewhere else first.”7Unveiled in its beta version via invitation to a small group in 2007 and opened to the entire 2008, Hulu made friends fast, reaching up to 40 million viewers per month in its first year. 7Despite these numbers, Hulu was born with some limitations such as content being inaccessiblefrom 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 livingroom as it does with the changing American technology. About 30 years ago, Americans couldwatch something any day of the week and be fairly certain that what they watched would be amandatory topic at the office, at the water cooler or at the playground the next day. With threemajor channels and little or no cable TV to speak of, catch phrases like "Exacta-mundo," or "Ipity da fool," were common currency among different demographic groups. If we go back fartherthan three decades, this phenomenon can be seen in even greater relief, simply by thesuperlatives in our vernacular: Johnny Carson was the King of Late Night,8 while WalterCronkite was the “Most Trusted Man in America.”9 Late in the 1970s and early in the 1980s, theappearance of the videocassette recorder along with the growth of cable TV began changing theassumption 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 ofthese 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. With5 Forssell, A. (2008, November 21) It’s All About the Content Retrieved from The HuluBlog: p. 165.7 Qualman, E. (2009) Socialnomics: How Social Media Transforms the Way We Live and DoBusiness.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 Martin, D. (2009, July 17). Walter Cronkite, 92, Dies; Trusted Voice of TV News. New YorkTimes Online Edition. Retrieved August 1, 2010 from Keller is a former Microsoft employee and an instructor at the University of Washington’sMaster in Communication and Digital Media program.
  3. 3. The Story of Hulu Page 3the end of the 1970s and the arrival of the 1980s, the goalposts moved, and the aim becamebringing a wider array of channels such as premium movie services, directly into the homes ofthousands.11With more people watching a wider variety of things and, thanks to the VCR, at different hoursor watching no TV at all, the viewing habist of Americans was facing a sea-change. As anexample, we have the following data from Robert Thompson’s "Television in the U.S.," anarticle 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.12This fragmentation of the TV audience was aided by cable channels eschewing the homogonizedone-program-fits-all approach of their network predecessors and instead aiming to pleasespecific 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 andMTV 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.11Concurrently, television sets became cheaper, which led to families owning more than one andfurther diluting the traditions of entire families gathered around the tube. Instead, people werenow watching different shows on different channels on different TV sets in different parts of thehousehold. 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., "feedingfrom the same cultural trough," and which had been the case since 1929.11By 1989, the network trough fed fewer and fewer people, and those still finding a cultural mealthere 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 bymore honest looks at the changing American mores. Then fledgling network FOX became amajor player by offering edgy programming Married...With Children and The Simpsons, largelyin thanks to different standards for “network” and non-network channels. This emptying of the11 Thompson. R. (2010) Television in the United States (2010). From Encyclopaedia BritannicaOnline Library Edition: This article may be best approached from a library database.
  4. 4. The Story of Hulu Page 4line at the network trough happened around the same time another medium was becomingincreasingly popular and accessible.Once the hobby of an obscure few, the internet became ubiquitous in American life. Articles andphotos soon gave way to embedded audio and video files. This in turn sparked the creation ofvideo content and by 2007, sites like YouTube -- founded two years earlier -- were becoming thewater cooler conversation fodder of 40 years earlier. Network television, in an attempt to keep itsonce-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 in2006. America Online launched In2TV that same year. NBC Universal teamed up with NewsCorporation, 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 toHulu on March 12, 2008.14 Soon after, the Walt Disney Company, owners of ABC, bought astake in and also began showing programming. By January of 2008, TechCrunch,GigaOm, Read/WriteWeb and VentureBeat awarded the 2007 Crunchies award forbest video startup.15 Once the site launched on March 12, Hulu carried content from, besides itsfounding partners, MGM, Sony and Warner Brothers.By 2009, the Hulu pie was split in four ways: co-founders News Corp. and NBC/Universal eachhad 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 notjust managing partners--they are the content providers. As Chadwick Matlin of the Slate.combusiness 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 programmingbeing pulled from Hulu. “It’s as if,” Matlin noted, “Amazon were owned by booksellers.”16Each of the four backers has a seat on Hulu’s board of directors. The 12-person board iscomposed of three members from Disney (Robert Iger, Kevin Meyer and Anne Sweeney), three13 Kilar, J. (2007, October 28) Beta Testing Begins for Hulu. Retrieved from The Hulu Blog: Kilar, J. (2008, March 12), Welcome To Hulu. Retrieved from The Hulu Blog: Feng, E. (2008, January 20), And the Crunchie Goes To… Retrieved from The HuluBlog: Matlin, C. (2010, February 3), NBC Officially Owns 32 Percent of Hulu (Until ComcastAcquires It) Hulucination blog on, Business and Technology section
  5. 5. The Story of Hulu Page 5members 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 fromProvidence Equity Partners (Al Dobron and Jonathan Nelson), and Kilar, who arrived to Huluafter a decade at Amazon17 and an earlier stint at Disney. The executive team at Hulu, besidesKilar, 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. 18Despite 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 isstill only a start-up and not "Big Media."19 Nevertheless, by September of 2008, Hulu hadbecome the sixth-most watched video content provider on the Web, with 142 million reportedstreams and 6.3 million monthly visitors, surpassing already-established brands such as ESPNand MTV. By the time the 2008 presidential elections rolled around, the less-is-more approachhad Hulu surpassing even some of its parent companies. Qualman notes that 14.3 millionviewed 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 thatHulus numbers benefit from allowing viewers to watch it more than once.The unconventional “start-up” continues to build momentum. As Eugene Wei, Hulus senior VPof audience put it on his blog20 when the Web site shed its Beta label after an 18-week trial run:"Were not anywhere near the finish line. It always feels like the to-do list outweighs thecompleted side of the ledger. But if it didnt then it wouldnt be that interesting a challenge andmost of us probably wouldnt be here."17 As of August 2010. From’s Media FAQ section.18 As of August 2010. From’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:. The blog is called “Remains of the Day.”
  6. 6. The Story of Hulu Page 6 Factors in SuccessIt seems strange to discuss the factors that contributed to the rise of Hulu when the launch ofsubscription-based Hulu Plus has critics heralding the site’s downfall.21 Still, the co-venture ofNBC, ABC, and Fox deserves its due. This site sought and found the Holy Grail of internet videostreaming: 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 1.2billion video views.22 What put Hulu in the position to reach so many and build such anaccomplished video streaming site? Among the many reasons for the site’s success, the five mostimportant factors are: 1) its access to a wealth of high-quality content; 2) its ability to offer that
  7. 7. The Story of Hulu Page 7content for free; 3) its distinctive approach to advertising; 4) its easy-to-use design; and 5) itsemergence 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 musicindustry and then turn our attention back to streaming video. The online community clamors forfree content. Unfortunately, much of what is available in that price range is either stolen or lowquality. Free entertainment content like music is often pirated and shared illegally through fileand 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 ofthe large size of such files and their slow download time. This is less the case today thanks tohigh internet speeds and better file compression, but in the end, it is still quite a hassle for mostpeople to download long, high-quality video files.Legal issues have permeated the music-sharing community. Pirating and illegally distributingmusic are killing the record industry, but giving folks an alternative to access free music withoutstealing may stave off total annihilation. Pandora Radio is an example of one personalizedinternet radio service that has struck a balance by allowing users to listen to streaming musiclegally and for free (though they are limited by how many hours of content they are allowed tolisten 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 foriPad have fail written all over it?") are just two of many who are sensing blood in the water sinceViacom 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 isincreasing, the number of unique visitors seems to be holding steady rather than increasingaccording 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 addedin the wake of a “royalties crisis” in which record labels demanded royalty payment frominternet radio sites.23Pandora Radio and music-sharing are relevant to Hulu’s success in that Hulu did not have to facemany 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 hitprograms like The Office, The Simpsons, and Prison Break, while also providing some episodesof 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 filesharing or bit torrent programs to get the TV shows and movies you want. You may end up withslow download speeds, poor quality or corrupted files, and the content you want may be difficultto locate. To top it off, you are most likely committing an illegal act and violating copyright in
  8. 8. The Story of Hulu Page 8some way when you obtain content in this manner. Hulu allows users to sit down anytime theywant and access the content they seek instantly and without damaging their karma or theircomputer.One way Hulu is able to offer all that free content and still bring in a profit is through itsadvertising revenue. This revenue is generated through a unique advertising plan following CEOKilars “less-is-more approach." While the model is unusual for internet users, Kilar considersthis approach a return to the advertising-to-content ratio seen in the 1950s.25 Add to this the highability of advertisers to target particular users based on Hulu’s user-identified advertisingpreferences and you have a potentially powerful combination. Hulu’s original business modeldelivered customization into the hands of members and targeted advertising into the hands ofinvestors.Unfortunately, the balance between what works for the users and what works for the financiersseems to be in jeopardy. As a new subscription-based model is introduced into the mix, manyusers are worrying about where they stand on Hulu’s priority list. In the article "Hulus aTowering Success--Just Not Financially,” published earlier this year in Advertising Age,_____________________________ 23 For more information about the royalties crisis, check out Pandora Radio™ Founder TimWestergren’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 JasonKilar mentioned the early content they could enjoy: "October 2007: Beta Testing Begins forHulu.”25 In an article dated November 24, 2009, Michael Learmonth of Business Insider discussedHulu’s growing success and Kilar’s attitude toward advertising: “Hulu Nation is Growing--AndFast.”Michael Learmonth, Senior Editor, discussed the various influences Hulu operates under rightnow: 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) pressurefrom its parent companies to institute fee-based services. According to Learmonth, however youslice 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 theever-increasing infrastructure costs, Hulu has launched Hulu Plus.It’s a tricky business introducing fees or more advertisements into an environment like Hulu. Thecompany itself proclaims its philosophy of ease of use and outstanding user experience as amajor contributor to its success (just pay attention to the number of times “easy-to-use” is foundon the site). Segregating paying members from non-paying, changing content distribution, oradding more advertisements runs the risk of alienating existing viewers and adding clutter to avery simple user interface.
  9. 9. The Story of Hulu Page 9The site is designed to be a marriage of traditional and web TV. The player avoids thecumbersome 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 movieswith a button reading:“Watch Now.” There are no impediments to viewing: neither registrationor installation of programs are required. The user experience is seamless. Browsing is guided byclear categories like “Channel,” “Most Popular,” or “Recently Added.” The site provides theopportunity to partake of the product whether you are a web-baby or a techno-geek. In his reviewof the site’s design, “How Hulus Design Gets it Right,” Matt Vella, Staff Writer for BusinessWeek, calls it a “contrast [to] other streaming television services, from ABC, CBS, as well asFox and NBCs own branded sites [which are] advertising-heavy, often work poorly, and aregenerally 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 sitethat is simple and less of a culture shock should do well in the early stages of the internettelevision 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 televisionsubscriptions. Even so, a recent study by Retrevo “shows that the majority of Americans — 64percent, according to the survey results — get at least some of their TV content online.”26Because 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 andmovies when it launched to the public in 2008.High unemployment rates, inflation, and tanking investments combined with ever-increasingcable costs over the last decade have taken a toll on consumers. The Bureau of Labor andStatistics released a report in 2008 stating that cable costs had risen alarmingly since 1996, atalmost twice the rate of inflation.27 According to Julianne Pepitone, Staff Reporter, “The average digital cable customer already pays almost $75 a month.” Risingcosts of high-tech infrastructure, loss of advertising revenue, and increases in competition meanthat cable companies are hiking prices by around 5 percent annually. 28 These factors create aclimate ripe for a provider of good streaming television and movie content to reach out with auser-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 inMay of 2010 and hosted by Mashable.
  10. 10. The Story of Hulu Page 10While the original Hulu business model, advertising set-up, site design, and timeliness haveworked their magic for the last three years (the site grossed $12 million29 and boasted 43 millionmonthly users by the end of its first year30), numbers of unique visitors have recently hit aplateau. Pressure from multiple directions has lead the company to institute a pay-basedsubscription service, and the “less-is-more” advertising ideal is being threatened. In this time ofturmoil, Hulu could easily drop from its pedestal. Decisions the site makes now could lead to anew, exciting way to provide people with online television and movies, or could leave Hulu’sprevious success in ruins._____________________________27 Matt Richtel wrote about the issue of rising costs of cable in his May 2008 New York Timesarticle, “Cable Prices Keep Rising, and Customers Keep Paying.”28 Julianne Pepitone discusses the findings of recent research by Centris on cable costs as well asthe looming terror cable providers feel concerning internet-based video services in her January2010 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 qualityin 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 avery big 2009.
  11. 11. The Story of Hulu Page 11 The Puzzle of Online Advertising on HuluOnline video revenue is targeted to pass $1.3 billion in 201031 and double to $3.5 billion by 2014.32 Itsyounger cousin, mobile television, is estimated to triple revenues and reach $1.2 billion aswell.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 advertisersis currently being viewed as a direct battle between buttoned-up, conservative parent companies(the networks) and its rebel off-spring ( And today, despite, or because of, the smallerad numbers, Hulu is in great danger of corporate infanticide due to potential success and scarynew is struggling to solve the Rubix cube of on-line advertising, with its jumbled sidesintermingling the needs of dysfunctional parent companies; advertisers looking for guidance;audiences demanding personalized, relevant content; and social media norms that haventpenetrated corporate television. Media advertisers slowly twist and turn the components of thepuzzle, yet none of the hypothesized combinations have led to a winning solution. And in themeantime, corporate television executives and pundits have begun to broadcast their doubt thatthe riddle will ever be answered. The circumstances are less than ideal to devise new-thinkingpossibilities available for online television advertising.The problem being currently addressed is properly monetizing advertisements. In an interview inAd 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 properlymonetizing the value of the value of the content,” she explained. "We know that as contentbecomes more digitized that the ad formats have to work harder so the ads continue to providevalue."VivaKi, a major player on the world stage of communications & media buying, is determined tobring together the pieces of the puzzle. The mammoth firm slowly began to compile data pointsin order to crack the Hulu ad code. The result was the simply named Ad Selector, which allowsthe viewer to select their "preferred ad" out of a line-up of desperate brands vying for 20-secondsof attention._________________________31 Cohen, J, July 13, 2010 Will Hulu’s ‘Ad Selector’ Become Online Video’s AdvertisingStandard Apple, Google and Hulu Racing to Crack Digital Ad Code diane-mermigas July 06, 2010
  12. 12. The Story of Hulu Page 12The deceivingly simple solution was the culmination of a 16-month collaboration between bigplayers Allstate, Applebees, Capital One, Nestle Purina, publishers AOL, BBE, CBS Interactive,Discovery Communications, Hulu, Microsoft Advertising and Yahoo!. The team spent over8,000 hours evaluating 29 ad models and 43 different executions. In the 178-page white paperdescribing the project, VivaKi reveals that, "Overall, the collective team spent 230,000 hourswith over 25 million consumers to determine that The Ad Selector as the optimal ad model foradvertisers and consumers." This is 26.23 years, collectively. 33The Ad Selector positions itself as the harmonized answer for all constituents. Advertisers wouldonly pay when their ad was selected; publishers would get a much higher ad rate than a typicalpre-roll. And by allowing viewers to choose relevant commercials, Hulu would provide whatconsumers were demanding: "The ideal online video ad experience" which "empowersconsumers and respects their time." And according to Ad Age (via VivaKi themselves), theparent companies would be happy: it is suggested that adding selection could generate millionsof new spending for the online Television medium.VivaKi seems to have flooded the project to a curious and somewhat enamored media. Theinfluential white paper boasted active innovation, an urgent response and the lure of lots and lotsof 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 dont careabout target advertising. This is of course, in direct opposition to the massive data dig providedby VivaKi. What this analysis is also missing is the promises or assumptions made during theVivaKi study versus the very broad question posed by Parks Associates. Content of theadvertisements 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 MillionIn Spending" Retreived July 30, 201034
  13. 13. The Story of Hulu Page 13meanings, especially in the customized, collaborative world of social media. Choosing betweenAudi and Gerber isnt much of a choice if you are a car-less, childless viewer. The increaseddemand for personalized content jumbles up the rubric once again. "Indifference indicatesconsumers can be won over by new advertising strategies, provided these messages are designedwell, with truly relevant content," commented Heather Way, research analyst for ParksAssociates in an interview with "Also, the younger age groups are morereceptive to the concept of targeted advertising, and advertisers place a premium on the ability toreach these demographics."35For now, the stable of Hulu advertisers continue the long-form process of mixing and matchinglogo bugs, end cards and branded slates provided by the Hulu marketers. Most content is straightfrom television, with bonus links to static websites. Clorox, surprisingly, has begun a campaignof 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
  14. 14. The Story of Hulu Page 14 Stiff CompetitionOn June 29, 2010 Hulu unveiled “HULU Plus,” a subscription service promising its customersaccess 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 CodeAdvisors said in an interview that “Hulu Plus conveys the opportunity of more platforms, moreeyeballs and more ways to monetize. And it certainly concedes that the future of TV is video, notjust on-air or on-demand, but also online and on mobile.”36 Many companies besides Hulu want apiece 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 shareof the lucrative online-video market. Let’s take a closer look into the current rivals on thebattlefield known as the online video marketYouTube - 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 from38 million the month before. The user base is broad in age range, 18-55 and evenly dividedbetween males and females. This website’s new feature, Leanback, allows users to watch videostailored to their interests based on their prior YouTube browsing experience. This applicationautomatically plays preferred content as soon as the user visits the site. The videos are played infull screen and high definition. There is no need to click, search, or browse for content unlessdesisred.Hulu competitors, such as YouTube, only account for percent of all online video views. Theother 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 digitalcontent via internet connection, WIFI, and 3G using personal devices such as iPhones, Androidphones, iPods, iPads, Play Station 3 systems, Samsung Internet TVs and Blu-ray players. Rao, L. (2010). TechCrunch. Retrieved 8/12/2010, from2136
  15. 15. The Story of Hulu Page 15Netflix -- (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 maleand 56 percent female. In June 2010, ComScore conducted a poll based on plain web traffic ofunique individual visitors showing that Netflix had 20.2 million visitors compared to Hulu’s 19.7million. For now, Netflix CEO, Reed Hastings, declares he is “not to be taking Hulu Plus tooseriously” and that it is “too small to matter" even though he admits that Hulu Plus’s archives ofmore 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 August2010 by trading above $133.8 due to almost a billion dollars deal with EPIX.38 Paramount, MGMand Lionsgate movies start streaming September 1, 2010. Netflix reported second-quarter netincome of $43.5 million, or 80 cents per share, up from $32.4 million (or 54 cents per share) ayear ago._____________________________37 Baumgartner, J. (2010) “Netflix CEO:Hulu Plus Still ‘Too Small to Matter’. 8/12/2010, from Operated by Viacom, MGM, and Lionsgate.
  16. 16. The Story of Hulu Page 16Boxee - Boxee, Inc. created a cross-platform freeware home theater PC platform whichassembles 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 andrecommend content to their friends through social networks like Facebook, making it a potentialgame changer. So far, Boxee hasnt made any money, but the company plans to generate revenueby taking a cut on sales of copyrighted content to customers.39 The company received two roundsof funding totaling $10 million. Coming soon is the Boxee Box made by D-Link that lets youwatch 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 fewepisodes from other sites, including Hulu. With Veoh TV, a downloadable application you caneasily find programs that you are looking for and then watch them directly through the Veohinterface. ComScore estimates that 14 million people a month still visit the Web site even thoughthey filled for bankruptcy last February due to a copyright litigation with Universal MusicGroup. 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 areregistering for multi-user video viewing with Qlipso, while more than 10,000 daily visitors aresampling 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 ofSkype and Kazaa). The site collects and curates thousands of videos to provide a selection ofmusic, TV, movies that appeal to people everywhere. The user base age range is 13-34, with 53percent being male and 47 percent female. In May 2010 Comscore reported this application asthe top video ad network in terms of their actual reach with 35.2 percent penetration of onlinevideo_____________________________39 Cohan, P. (2010) Daily Finance, Retrieved 8/13/2010, from
  17. 17. The Story of Hulu Page 17viewers. On November 24, 2009, Adconion Media Group announced that they would bepurchasing the companys assets for an undisclosed amount.NewcomersHBO Go - HBO Go proclaims “Its HBO. Anywhere”SM and plans to expand to more platformsso subscribers will gain instant unlimited access to over 600 shows, including HBO® OriginalSeries, documentaries, blockbuster movies, sports and more in High Definition. Additionally thesubscription will bring new features and exclusive behind-the-scenes extras. This service iscurrently free with an HBO subscription and it allows you to watch HBO shows from yourlaptop, desktop, cellphone, or Ipad and to create personal “watchlists” to access your favoriteHBO shows automatically.Google TV - (NASDAQ: GOOG) Google TV makes it easy to access videos and TV episodesthat are available online using one single interface. You can search videos and TV episodes thatare online on various websites including Netflix, YouTube, cable listings, etc. This means thatinstead of jumping to your computer to see a free episode of your favorite show on Hulu or anetwork website, then checking your TV cable listings, you can search everything at once andchoose which method you want to use to view the content. Google TV will come already stockedin some new televisions in the fall of 2010 and consumers will have the option of purchasing abox for around $300.0040 to hook up their current set.Competing Business, Inc. - (NASDAQ: AMZN) Amazon has a video on demand service that is onlyavailable in the U.S. It offers television shows and movies for rental and purchase and sellsDVDs and downloads of recent television series episodes. Currently, downloaded videos cannotbe transferred to mobile devices such as iPods, limiting their functionality. The user base isbroad in age range, 18-49, and evenly distributed between male and female. A company pressrelease announced financial results for its second quarter, ending June 30, 2010 as up by 41percent to $6.57 Billion.Apple Inc. - (NASDAQ: AAPL) Through iTunes and Apple TV, users are able to buy or rentmovies or TV episodes and start watching them in minutes. Content is available in standard orhigh definition and can be viewed on personal computers, iPhone, iPad, iPod touch, or televisionvia Apple TV. The user base is broad in age range, 18-49, 44 percent are male and 56 percent arefemale. Apple generated $15.7 billion in sales and a profit of $3.25 billion during the company’sfiscal third quarter. The stock price is $249.10. Itunes has 2.9 percent of stock price value andApple TV has 1.3 percent of stock value._____________________________40 Dish Network assumes Google TV boxes will be around this price.
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  19. 19. The Story of Hulu Page 19 Staying Ahead of the GameHulu vs. CableWhile most Americans can’t picture a world without cable television, they still dream of a utopiain which astronomical cable bills are outlawed. With the average American spending $75 ormore 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. Hispersonal cost-benefit analysis comes out strongly in favor of ditching cable and watching showsstreaming online or purchasing the content through iTunes. Says Rowles of iTunes seasonpasses, “If I purchased all the shows that I regularly watch, I’d only spend $930, which is $600less than I normally spend per year for cable. And, for $600 less, I’d have complete portability Icould watch the show on my iPhone, on my desktop, or on my laptop.”41Hulu 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. IfHulu Plus became the sole paid subscription for television programming for the average cablesubscriber, he or she would save around $780 per year. You’d think this would be a hard deal topass 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 Retrevomentioned earlier in this paper, 64 percent of people in the sample watch some of their televisioncontent online. The number is much higher for those under the age of 25. This study illustratesthe growing familiarity with receiving television content via the internet. Despite the increasingnumber of online television viewers, only 5 percent of people in the study watched all of theirtelevision content online. It is possible that consumers are well-aware of the cheaper option HuluPlus presents, but are also aware that the service has several key obstacles to overcome in orderto cement itself as an alternative to cable TV. Among these obstacles are streaming qualityissues, lack of premium channel content, limited live broadcast access, and difficulty obtainingcontent 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 thatHulu has not acquired the rights to offer the Hulu content library in its entirety on differentdevices. 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 CableTelevision?,” encourages readers to drop their cable subscriptions and stick it to Time Warnerand Comcast by giving themselves more time to watch the shows they love for less money.
  20. 20. The Story of Hulu Page 20PS3 will not be allowed to access all of the content available to them on the Web. Hamilton alsopoints out that paying for Hulu Plus does not guarantee that you will receive shows the momentthey air, or even several days later. Subscribers still have to wait for shows to be posted (whichcan take up to one week). Hamilton argues that Hulu has shown it is capable of live streamingwith its coverage of the June 15, 2010 Presidential Address and other events. Why can’t the siteoffer 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 coverthe premium channels’ shows and special productions. Cable providers offer packages that allowthe viewer to access programming from Showtime, HBO, and high-end sports channels. The lackof this type of content in the Hulu Plus library means that many premium channel watchers andfans of live sporting events in particular will keep their cable subscriptions as long as this contentis exclusive. Hulu Plus, in order to siphon more viewers away from cable television, will need tofocus 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 likethe iPhone, iPad, Samsung HDTVs, and Blu-ray players to be able to keep competitive. HuluPlus does some work to this end, but how about some added value? How about mobile alerts viatext 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 expandas time goes on. Plans for the service to become available on Sony and Vizio TVs and Blu-rayplayers by the end of the year, as well as the Microsoft Xbox 360 and Sony PlayStation3 gamingconsoles show a great deal of promise. The trick will be to continue to maintain a very sleek andsimple 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 thecontrary from the cable giant. Cable is a $22 billion dollar business, and when businesses likeHulu are putting out content for free which otherwise would be accessible through a subscriptionto, say, Comcast, pundits are right to at least suspect the writing is on the wall for Hulu as weknow it if Comcast begins calling the shots. Furthermore, if one examines Comcast’s rap sheetwhen dealing with internet ventures--the BitTorrent case comes immediately to mind-- thosefears are more than just paranoid ramblings, they may well be founded. Fears range fromComcast influencing Hulu’s content to Comcast favoring its own cable ventures in detriment ofHulu to Comcast simply “kneecaping”42 Hulu’s appeal to consumers by weighing it down withall sorts of conditions and rules._____________________________42
  21. 21. The Story of Hulu Page 21Democrats in Congress, including U.S. Sen. and former NBC employee Al Franken 43 havedecried 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 experiencedin dealing with broadcasting rights and monopolies (the Kohl family owns the MilwaukeeBucks’ NBA franchise) demanded that any NBC/Universal-Comcast deal include the provisionthat the resulting conglomerate sell its Hulu stake within a year.44 With Hulu talking about goingpublic with an IPO on the stock market, the question is whether it is wise to buy stock in acompany that may be punished for doing well by its parent company (Comcast), if doing wellmeans 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 siteslike Myspace, Facebook, and Twitter. Facebook currently boasts over 500 million active users45and Twitter had over 28 million unique visitors in June of this year.46 The success of theseplatforms has everyone scrambling to incorporate social networking into their business strategy.Internet television providers are no different. They are making great strides in fusing socialmedia with devices and web platforms. How Hulu is faring in this regard and how it canimprove 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 allowsmembers to create a profile and connect with other Hulu users. Hulu Friends gives individualsthe ability to search their other social networking platforms as well as the various email servicesthey 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 Activitiestab on your friends and your profile pages offers an in-depth look at everything from viewinghistory and subscriptions to reviews, ratings and discussions,” says Hulu.47While creating connections between members is a great step toward building community and_____________________________43 More information on Facebook statistics can be found on their website at The statistics on Twitter’s July 2010 unique visitors were gathered from The description on the Friends page on the Hulu site describes the many ways you can interactwith your network.
  22. 22. The Story of Hulu Page 22sustainability, Hulu needs to go further. Namely, they need to increase interactivity within thesite and across other social media platforms as well as build a presence in the “real world” withbetter ad tailoring. It seems Hulu is aware of the necessity of involving members and increasinginteraction, but it has poured a large part of its social media strategizing into its original series “IfI can Dream.” This web-based reality show, produced by “American Idol” co-creator SimonFuller, 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 ReporterSamuel Axon mentions that “The cast’s Twitter, Facebook, and Myspace accounts are linked andchock 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 andblogger Rich Mbariket, sees the venture as a disaster. According to his August 2010 post HuluWeb Series If I Can Dream Has Done Everything This Season To Get An Audience, But WhyIs 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.” Hulucontinues 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 unoriginalpremise, 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 forumdedicated to “House” contains thousands of posts and conversations about specific episodes,characters, and the series as a whole. is a community where fans gather to discussthe many confusing facets of the ABC show “Lost.” In 2002, the site sprungup.48 Basing its name on one of the biggest television and media events of 1997—EllenDegeneres’ coming out announcement and her subsequent outing of the title character of her TVshow, “Ellen”—the site hosts a community along with blogs and videos about various televisionseries and aggregates news related to lesbian and gay characters in films and on television. Theseare 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 tocreate 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 discussionand comments sections they build in for shows—which are very unassuming and not very_________________________48 To learn more about the creation and evolution of, visit the site’s AboutAfterEllen page.
  23. 23. The Story of Hulu Page 23engaging. The social media aspects of the site are under-utilized, member-created content is notshowcased and there appears to be little marketing to the members as a group encouraging themto connect with one another and share about shows.Moving Hulu Friends to a more noticeable area of the site and marketing the feature wouldprobably boost the site activity and give people another reason to join and to keep coming backto Hulu. Another tactic worth trying that may result in adding value to the site and in buildingcustomer loyalty is to allow blogging, or at least micro-blogging. Given the capability, Twitterusers would most likely tweet from the Hulu site about what they are watching. An applicationcalled Twuulu was even created to meet this need before Hulu shut it down with a cease anddesist order. Why not incorporate Twitter and Facebook sharing into Hulu? Better yet, why notinclude 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 mediacenter,” that offers a solution for watching streaming videos directly on your television set whilealso accessing your social networking feeds and pushing out content suggestions to yourFacebook and Twitter connections.49 By developing consistent, wide-reaching social networkingstrategies that play to their strengths (i.e. their large content library and built-in fan bases for saidcontent) the Hulu team may continue to exist as a leading provider of streaming video. Huluneeds 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 valuablecontributions of their own and by building the Hulu community and connecting it with othersocial networks.Furthermore, to improve the chances for the site to stay relevant and successful, the Hulu teamneeds to take steps to live up to their claim that they offer personalized, user-influencedadvertising. Members are supposed to be able to answer questions pertaining to their habits andneeds that will inform the “Ad Tailor” and create a unique ad experience. Unfortunately, theexperience 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 thecompany’s status as the “developer of the first ‘social’ media center.’” In a later blog post on theBoxee website, Andrew Kippen, Vice President of Marketing, mentioned the updated software’sability to manage Facebook and Twitter in the Boxee feed (“NHL + Updated Beta,” April 2010).
  24. 24. The Story of Hulu Page 24questions a member answers indicating he or she does not need new car insurance and no matterhow many times the user clicks on the ad stating that it is “not relevant” to them, viewers willstill occasionally see an ad for car insurance.Jessica Roberts, MCDM student at the University of Washington, wrote of some possible waysfor Hulu to mold their advertising model into one that may prove effective in the long run in herblog 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 creativemembers who thrive on the chase to ‘break’ information. This transformation could be shaped inseveral 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, withrewards or coupons because they are an ‘elite’ group watching Hulu. The technology to captureviewing statistics allow[s] Hulu to target hyper-local advertisers that would otherwise not haveaccess to TV advertising.”Perhaps Hulu should consider focusing on providing ad space to local companies. Imaginewatching 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 streetor a grocery chain that is nearby. Especially considering that Hulu Plus is a subscription servicethat includes advertising, it is in Hulu’s best interest to create a very relevant ad experience fromhere on out. Thinking local may save Hulu from cultivating weary viewers who do not want topay for ads they have to watch repeatedly and that have nothing to do with their real-lifecommunity.