73946011 Hulu Intl Abbreviated

7/23/2019 73946011 Hulu Intl Abbreviated

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TheFutureofHuluintheGlobalTVMarketTermPaperAbbreviatedVersiontertainmentMarketPlaceProfessor:JonathanTaplinUSCAnnenbergSchoolofCommsmNovember30,2009


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AbstractIn1997Hollywoodseemedunbeatable.FoxjustreleasedthemovieTitanicthaticesaroundtheworldlikenoothermovieeverbefore.Itmadeabout$600millionintherldwasresponsibleforanunprecedented$1.2billioninticketsales(Imdb,1997).Justhtswereworth$50milliontoHBO.TelevisionindustryexecutivesbeganreceivingprojectsiblerisksposedbyonlinevideositesafterthereleaseofaclipcalledLazySundaywhayNightLive.SimultaneouslythemusicindustrybegantankingduetoillegallydistribufZucker,wouldlaterrecallthatthatwasthemomenteverythingchanged.(the)Initial

temusicsuffered.WehadthesamefeelingasNewsCorp.,andthat'swhywecametogethern(TV)sitethattrainedpeopletolegallyviewitonline(Kafka,2009).NBCteamedwithivemodelthatwouldrevolutionizenewmediaHulu.WhatthefutureofHuluisstillyeobaltelevisionbusinessisalsostillunknown.ThefollowinganalysiswillexplorethesecusonthecurrentstateofHulu,itscurrentchallengesandfutureimpactsontheworld'.Thefinalportionofthepaperwilladdresspotentialcurrentandfutureconsequencesointernationally.


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Hulu'sSuccessandThreatsOnlinevideosarebooming.2009maygodowninhistoryasthsjoinedtheearlyadoptersinwatchingTVontheweb.InOctober2009morethan138millirethan11billionvideosonline,accordingtoNielsen.Thesenumbersaccountforabout6tmarket.Huluhasgrownthisyearmorethananyothersite.ArecentreportbyComScore%inOctober2009comparedtojustthemonthbefore.Thatwasthebiggestsinglemonthpeiquevisitorswerealsoupnearly10%to42.5million,from38.7millioninSeptember.Mibstantially,to123minutesfrom92minutesinSeptember1(Learmonth,2009).Thatgrowth

pandcomingABCandFoxseriessuchasGleeandVthatpremieredthatmonth.Suchasucc.Inordertounderstandwhywemustfirstunderstandthecircumstancesinwhichthesite

*Rankingsbasedonvideocontentsites;excludesvideoservernetworks.Onlinevideoinclundprogressivedownloadvideo .

Inthesummerof2006,FoxandNBCwerethinkingprimarilyoftheirownneeds.YouTube,wareoftelevision.Initiallydesignedasaplatformtosharehomemade1WhilethenumbersbetweenNielsenandComScorevary,thegrowthpercentageisverymuch


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videos,itwasquicklyappropriatedbyuserssharingTVhighlights.OnlinevideowasgrowinesandhighspeedInternet.Inanattempttoavoidthemusicindustry'sfatethetwobrotethatwouldkeepthemincontrolovertheirownshows.Bymakingitfreeitwouldbeairacy(ChmielewskiandJames,2009).NBCandNewsCorp.backedthenewsitewith$100milnceEquityPartners.Thesite'screwquicklystartedworkingontheinterface.Huluwasbever,likemostofthecomputersitrunson,thesitewasmadeinChina.Thesite'sCTOErospokemostlyMandarin.FengwasinHollywoodbuthiscrewstayedinBeijingandtogethe

.InMarch2008,Huluofficiallyopenedforbusinesswithmorethan250TVshowsand100eircablechannelsandnewpartnerslikeLionsgateandtheTVarmofWarnerBros.Thesitndshowsthatwerenotonthesite,makingitaonestopshopforallTVcontent.TwomocomeoneofComScore

stop10U.S.videosites.ItsgrowingpopularityledViacomtooffeentral

smostpopularprograms.Recently,WaltDisneyCo.,whichhadbeenreluctanttojoinequityownerofHulu.WithDisney'sABCshowslikeDesperateHousewivesandLost,Huluresustainable.Hulu'ssuccesscanbesummarizedinthreewords:freepremiumcontent.swhatthatmeans:TVwheneveryouchooseOnlineviewingallowsuserstowatchTVonthowsandfocusontheirfavoriteprograms.Asaresult,about20%ofconsumerssaytheirtined.(TNS,2009).


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TheinterfaceHuluhasdoneanexceptionaljobinimprovingtheonlineviewingexperiencndsearch,thevideosstreamquicklyandtheusercanseethebufferingprogress.Huluad,lowerlightsandhigherresolutionuptoHDalldesignedforearlyadapterswhoconnetTodayHuluisaleadingaggregator.Ithasnearly150contentproviders:majorstudiostialcompetitorsfromotherTVstudios.Thesiteoffersmanyshows:drama,comedy,sports,someofthecontentisavailableforalimitedtime.Formostpopularshows,HuluofferysthesiteismakingitsfirststepsinthemusicbusinessandadealwithmusiclabelEM

).CommercialsInthespectrumbetweenTV(manycommercialbreakswithmanyads)andtyonead)Huluhadclearlychosenthelatter.Hulu'sCEOJason Kilar explained: Webelievchwhenitcomestoouradvertisingservice.Inthis,westrivetodeliverauserenvironcityandsparseaesthetic.Wheneveraskedabouttheissueofcommercials,Hulu'sexecsssion'sgoldenagewhenhalfhourprogramscarriedfourminutesofadvertising(asopposedatapproachmadeHuluanattractiveplacetowatchtelevision(Dubner,2009). PriceThit.HuluofferspremiumexperiencethatissometimebetterthanTVanditdoesnotchargeasierwaytoestablishHuluasamajoralternativetotelevision.WhilemanyofHulu'suseystilluseHulubecausetheydonotpayforit.Hulu'ssuccessisdrivenbytheseptsexistence.Hulucurrentlystreamabout3.1%ofallvideosintheU.S.(aboutatenth


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madeitimpossibleforit'srevenuegeneratedtoabovetheliabilitythatitincurs.Earlystimatedthatbytheendof2009Huluwouldgenerate$180millioninadvertisingandmatchenhehasloweredhispredicationto$120million(stilla95%increasefromtheyearbeflysoldabout60%ofitsadvertisinginventory."Whatwehaveseenisrapidgrowthincongisnotkeepingup,"Amelsaid.ButHulumaysurpriseeverybodyafterall.AftertheaddnOctoberincreasedby49%andthesitemanagedtosellmostofitsremainingadvertisemedthatHuluisnearingselloutinthefourthquarter(Leartmonth,2009).Itisstillea

n2009,butregardlessoftheexactnumberitwouldbemuchlessthanwhattheTVbroadcagstrategy,whichfueledthespeculationsthatthesiteisnotprofitable,couldnowbeurevenue.Consideringthemassivegrowth,thesite'smanagersmighthavetogiveuptheletadloads.Otherwisethefreepremiummodelmaynotlastforlong.Thesecondproblemisufamilyabouttheadsellingsystem.ThewayHulucurrentlyworksisthatthesite'ssalrnetworks.Insteadtheyoffervideospotsbasedongenreoraudiencedemos.ThisledtothatHulu'ssalesstaff,attimes,deliberatelysellsagainstitsnetworkbrethren,promidupdilutingthevalueoftheentirecategory(Shields,2009).Sofartheseissueswereiabutthefacttheyexistillustrateshowsensitivethispartnershipis.ThethirdandgistingmodelistherisingpressurefromcableandsatellitecompaniesthatfearnewdeviyplayersandInternetSetTopBoxesasBoxeeandRoku.ThesedevicesstreamvideofromtayingfieldforthewebtotrulycompetewithtraditionalTVproviders.Otherthanarel

ikeNetflix,

many

sites

like

Hulu

and

YouTube

offer

content

for

free

and

create

adilemma


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consumerswhonowpayover$100forhundredsofchannelstheydonotwatch.ThismaybeexiessuchasTimeWarnerandDirectTV.Judgingfrompastexperience,Hulu'sownersdonotecompaniesthatmakemanyoftheirproductionspossiblebypayingthecablenetworks.Theinthepastyear.FirstinJanuarywhenHulu,attherequestofFX,limitedtheaccesshiaafteritbecameahitonthesite(andonlylaterontelevision).Shortlyafterthat,Boxee.KilarapologizedtouserswritingourcontentprovidersrequestedthatweturnoffeBoxeeproductandwearerespectingtheirwishes.Soon,onceHuluwillbeprofitable

wtokeepthatrevenuestreamwithoutthreateningoneofHollywood'sbiggestprofitcentemsliketheheadsofNBCandFoxareleaningtowardssomekindofapaidmodel.Bothcomprebyitsowners:NewsCorp.CEORupertMurdochwhocontrolsFoxisleadingaprocessthallstarttochargeforcontent;NBCisabouttobeacquiredbyComcast,whichisalsothemore,ComcasthasbeendevelopingacompetitortoHulubasedontheideaofTVEverywhereeringthisapproachthatisbasedonauthentication.ThesitewouldrequireuserstoprovesbeforetheycanwatchcurrentshowsonHulu.Thepartnersarealsodiscussingsettingu,withsomeshowsavailableforfreesuchasprimetimenetworkofferings,whileotherswgcableTVsubscribers."Everyoneiscoalescingaroundacentralareaauthentication,"hiefofFox

stelevisionnetworks."Ifwecanmovethisintherightdirection,itwillbesstotheconsumer,andgoodforbusinessoverall"(ChmielewskiandJames,2009).


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ButthereisalsoanotherscenarioforthefutureofHulu.Itcouldbecomeamuchbiggers

thereforemuchmoreprofitable.ThatcouldonlyhappenifthesitemakesitselfaccessibleeUnitedStates.Huluhasbeencontemplatingthisoptionforquitesometime,targetingheUK,GermanyandFrance,whichtogetherwithJapanaccountfor60%80%oftheonlinevi

uluasoneofthemostpopularsitesintheworldbutitalsomaychangethetraditionalcantelevisionisbeingdistributedoverseas.


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GoingGlobalPossibleMarketsforHuluHulu'snaturalpathofgrowthcouldstartinWawheremostpeopleshareacommonculturaldominatorwiththeU.S.audience.ThebroadbaesarethesamepeoplewhowatchAmericanfilmandtelevision.In2006,10outofthe10tanadawereAmerican.InSpain,UKandGermanyitwas87(UNESCO,2009).GiventhesizeoketsforHulu.First,Hulushouldlookatthebroadbandpenetration,onlinevideoconsumpllingnesstopayforpremiumservices.CountryBroadbandUsers%InternetPenetration%WatchingStreamedTVPrograms

tedinStreamingPremiumVideosFromaConnectedSTB?49%n/a64%Germany547,719,00065.9%71.8%74.1%1722(AllofWesternEurope)YesHaveaTVPre

CanadaAustraliaUK

28,000,00016,926,01546,683,900

84.3%79.6%76.4%

22n/a29

YesNoYes

Spain

39

No

USA

20

49%

Yes

Sources:ITU,ParksAssociatesMOREINFULLDOCUMENT


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2020TVThreeScenarios3yearsafteritcametobeingHulu'sfutureisunclear.ecompanies,theexpectedpurchaseofNBCbyComcast,therecentremarksbyNewCorp.'sRgingforcontentandtheoverallfeelingintheindustrythatthetraditionaltelevisiongallareworryingsignsforthosewhoenjoyHulutodayanddonotwanttopayforittandinternationally.WhileHulu'spaidoptionanditsexpansiondonotseemrelated,oneeother.ThefutureisalwayshardtopredictandinthisdigitalageitisquiteimpossiedifferentscenariosforthenextchapterinHulu'sstorythattakeintoaccountallthe

tagendas.DirectDistributionHulucoulddecidetogoaheadasplanned.Encouragedby,Hulu'sownerswouldtakethebattleagainstYouTubetothenextleveloverseas.Insuilltreatonlinestreamingasatotallydifferentdistributionmode.TheywouldonlydosarketshavemuchmorepotentialthantheU.S.marketandwiththedeclineofDVDsales,testream.Hulu'sownerswouldrealizethatthefuturetelevisionisonline.Theywouldthreinthespiritoftwomen:Moore'slawwhichstatesthatthereisnowayofslowingdowlveordie.Intheyear2020cableandsatellitecompanieswillbehistory.Everyviewerntentsourcesandpayitdirectly:fromlocalTVchannelstoserviceslikeNetflix,AmazorsayitisjustcatchupTVbecausetheywouldbecompetingwiththelocalchannels.Hulbraryandnotjustthefiveepisodes,asithasbeendoing.Theycouldofferthreetofivouldbebasedonperepisodefee.Amonthlysubscriptionshouldbebetween$15$30(bothinordertoefficientlycompetewithNetflixandhaveasustainablesite.However,


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ifHulucontinueadsalestobeitsprimarysourceofrevenue,itisunlikelythattheygettheglobaltelevisionnetworkproducesinAmericanstudios.That'samajordeficiency.tmarketstructurewouldlikelytoresultinlessTVproduction,atleastinthefirstferofitable.Thiscouldlikelyaffectthefilmindustry.IfthathappensHollywoodwouldbeonvaluewouldgodownandlocalcompetitorsmightbecomemoredominant.Inthecurrentedia,ChinaandBrazilthereispotentialforthistohappenregardlessofHulu.Takingthgainstlocalcompaniescouldverywellaccelerateit.TVEverywherethisscenarioism

ingtheNBCdeal,ComcasttogetherwithitsotherpartnersinHuluwouldstartchargingferylimitedcontentforfree).Thesitewillchargeonetimefeesforeachepisode,whicheonAmazonandVODservices.Therewouldbenosubscriptionoption.ExistingcableandsajoytheTVEverywheremodel:theywouldnotpayextraandgettheirfavoriteshowsonTV,eU.S.modelwouldthenbeappliedaroundtheworldtogetherwiththelocalcableandsatry.AswiththeU.S.market,Huluwouldmakesuretokeepitsonetime streampriceatatumersinthehandsofcableandsatellitecompanies.Insuchacase,piracywillcontinytogrowespeciallyintheU.S.Thismaymaintainthestatusquointheglobaltelevisiorthat,whenwebenabledplayerswillbecomemorepopularandbroadbandwillbecomefasteiceswouldbeabletooffereasiersolutionsforitscostumers.Itwouldbeillegal,butmesametime,thelowproductioncostsmayencourageyoungprofessionalswhoaren'tablethrunksubstantiallyafterthecurrenteconomiccrisis)


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toproducelowcostshows.IfthoseshowsarecarriedbyserviceslikeAmazon,Netflixorgroom,popularitycouldbegreaterthanthefirstgenerationofwebisodeswhichwereoouldeventuallyhurtHollywood'sincome.CombinedModelInthethirdscenarioHulupartrketandtheymaketwostrategicdecisions:tokeepHuluasavibrantwebsitebuttodoeetransitiontothenewmodel(webTV)asslowaspossible.First,TheadsperepisodeswoakeHuluabitlessattractiveandmuchmorelucrative.Thesitewouldonlyofferthe2l.Simultaneously,anewsubscriptionmodelpaybychannelwouldbeintroduced.Forex

age(Lost,V,DesperateHousewives)ortheFoxpackage(TheSimpsons,24,FamilyGuy).Thcludepastseasonsfromthebroadcaster'slibrary.ThatcontentwouldincludefewercommecationoptionwouldbeofferedtocableandsatellitecostumerssotheycouldenjoytheTVgncountries,themodelwouldbesimilar.Huluwouldbepricedinawaythatwouldencoublecompanies.Thefreesitewouldonlybeforcatchupandthesubscriptionoptionwouldrswhowanttowatchaspecificshowthattheircableorsatellitecompanymaynotcarry.taypopular(becauseofitsfreecontent)butwouldposelessofathreattocableandsacialsandlesscontent).InthisscenariotheexistingcarrierswouldbeabletoofferthcesusingHuluwhilethesitemakesanameforitselfandgeneratesrevenuefromoldseaspularamongnonpayingTVcostumers.Eventually,TVwillbecomewebbasedandcableandsosecustomers.Then,Huluwillbeinagoodpositiontobecomeanindependentdistributiontcouldstartchargingpeopledirectly(Blodget,2009).


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DirectDistributionTVEverywhere

PriceMonthlysubscription$15$30Satelliteorcableprice

ShowsAvailableFullLibrary

CombinedModel

Pricedbyspecificchannels$10$15,FreeforSatelliteorcableprice

FreeAdsContent5last8episodesmins/hourWhateverVery4airsonLimitedeWhatever2lastFreeairsonepisodes8theTVmins/servicehour,andfullioushourseasons

LocalWhenBroadcastersProfitableCompetitionFarfuture

ProbabilityLow

Partners

ImmediatelyHigh

Partners

Nearfuture

Low

Inconclusion,Hulu'sfutureisamysterytomostpeopleandmaybeeventoitsowners.Iermarketsinordertoreachmorepeopleandtoaddmorecontent.Thatistheonlywayfontheworld.Suchamovelookspromisingbutitholdsmanyquestions.SomeofthemwillbcidehowtomonetizetheexistingU.Sservice.Huluinternationalwillbeborntofittha

de,thefutureofthetelevisionindustryisnotsolelyintheirhands.Theymightstillngtheoverallmarket,butitisimperativethattheynotdiscounttheenvironmentalfacteers,computergeeksandthepublicdemandaroundtheworld.Note:[email protected]


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