Hulu Attracts Crowds but Not Ads

(page 2 of 2)

"Right now advertisers are trying to cut back anywhere they can," says Jason Blackwell, an analyst at ABI Research. "So unproven models like Hulu are usually the first things to go."

One of the great promises of Hulu has been the free syndication of its content. Rather than insisting viewers show up at a certain destination, Hulu has allowed anyone to embed its videos anywhere. It also has worked with other video sites to allow its content to supplement video libraries elsewhere. But in February the site disabled the ability of two popular sites to pull in its videos: TV.com, a video-aggregation site owned by CBS (CBS), and Boxee, an independent application that lets users watch Web video on their TV sets.

More Limits Are on the Way

Hulu Chief Executive Jason Kilar wrote in the company's blog on Feb. 18 that the Boxee takedown was the result of a request from the site's content providers. Analysts believe the incident may have been a sign that News Corp. and NBC are worried about cannibalizing TV viewership. "[Hulu's] parents are holding it back," says Colin Dixon, practice manager for broadband media at Diffusion Group in Frisco, Tex.

The two parent companies have also taken steps to limit how much of their own content appears on the site and when it appears. In January, Hulu pulled episodes of It's Always Sunny in Philadelphia, a show on News Corp.'s FX Networks. In February, NBC's Sci Fi Channel added an eight-day delay to the posting of episodes of its popular Battlestar Galactica series to Hulu in hopes of increasing its TV viewership for the final shows of its season.

Forrester (FORR) analyst James McQuivey predicts that more video content creators will impose limits on online audiences. "We expect this situation to intensify throughout the first half of 2009, resulting in bolder content restrictions on the part of content owners and more doubt cast on the role of online TV show aggregators," McQuivey wrote in a Mar. 13 report, Preparing for the Coming Online TV Backlash.

Brahm Eiley, president of Toronto-based media researcher Convergence Consulting, says many within the TV industry still view sites like Hulu as a promotional vehicle to support more lucrative broadcast operations. "They don't put everything they have online because they don't want to kill their cash cow, which is television," Eiley says.

CBS and ABC Want In

Still, even TV veterans realize that the future of their business is, in some form, online. Recently, Time Warner (TWX) CEO Jeff Bewkes laid plans to offer a service called TV Everywhere, which will offer its cable subscribers access to all of the shows they watch on TV on a members-only site on the Web.

Rival online video offerings are finding success. Netflix (NFLX) has added more than a million subscribers since introducing streaming TV shows and movies to its service. CBS and Disney-owned ABC, two networks that currently don't allow their content on Hulu, each hold about a 1% share of all videos viewed on the Web, compared with Hulu's 2.5%. Under the proposed terms of the deal being discussed between Disney and Hulu, first reported by the blog PaidContent, some ABC shows, such as Lost and Ugly Betty, would become available on Hulu.

Competing players could make hay as Hulu works out the kinks of its business model and content partnerships. "Being first doesn't always mean you'll be the longest-lasting or most successful company out there," says Blackwell at ABI Research. "[Hulu is] good for the industry because it's bringing awareness and finally creating momentum for these kinds of services, but at the same time it could become a victim of that success."

Business Exchange related topics:
Online Video Advertising
YouTube Vs Hulu
Online Ad Operations
Online Video

MacMillan is a staff writer at BusinessWeek.com in New York. With Ronald Grover in Los Angeles