Born Curious

I’ve been keeping an eye on internet tv for the past couple of years and Hulu definitely seems to have set itself apart from its competition. There’s a great article in Mediaweek that looks in-depth at its recent growth. Below are some highlights.

Hulu has grown at a clip not anticipated even by its own backers. In February, less than a year after launch, Hulu became the Internet’s second-most-popular video site, trailing only YouTube, according to Nielsen.

Hulu has taken the lead in forging a business model for legal long-form Internet video, a content area that didn’t even exist as recently as three years ago. Originally dismissed by critics, including some at YouTube parent Google who referred to it as “Clown Co.,” Hulu was derided as a flawed strategy, a digital outlet for old media that consumers had no interest in watching.

But advertisers viewed its potential differently, with 200 marketers signing up with Hulu in the past year. That said, in recent months, the amount of unsold inventory given over to public-service ads has been equally visible.

Hulu is caught in between an Internet model and a broadcast model, one that media buyers have yet to fully understand or accept. Media agencies are still set up for scale buys; that’s how they make their money, and Hulu doesn’t fit well within that model. Additionally, video on the Internet is increasingly sold on the basis of audience and behavior, while traditional broadcast still uses content as a proxy for audience.

“What is troubling is that some of the inventory that’s been unsold has been in attractive programs with devoted audiences in the Internet zone and coveted demographics in 18-34,” says James McQuivey, an analyst with Forrester Research. “I think ad buyers don’t know where the Internet fits into their overall media buying yet. It’s part B of a two-part buying process, where they buy TV first. Now that the first part is rebounding, maybe the second part will also rebound, but there are still some fears that online video won’t pick up until the fall season.”

Now, with a new partner in Disney, Hulu offers more premium content than any of its Internet video competitors. In addition to original backers NBC Universal and Fox, Hulu works with 150 content providers, including all of the major TV production companies with the exception of CBS, which is aggressively developing TV.com.

Hulu’s traditional backers created the site as a hedge against the industry’s digital future-seeking to avoid the mistakes the music industry made in dealing with Napster-and as a way to control and monetize their content on the Web. But Hulu’s growth is said to have even surpassed their own expectations, and sources familiar with the site say that leaving a lot of inventory unsold at Hulu is a calculated measure so network CPMs don’t slip.

YouTube maintains a commanding lead over Hulu in traffic and brand recognition. In April, YouTube had total streams of 5.5 billion, about even with March’s number, and 83.7 million unique visitors, according to Nielsen Online. Hulu had 373 million streams, an increase of 25 million over March, and 7.4 million unique visitors. (comScore counts Hulu’s uniques as higher.) But YouTube has been unable to convert that traffic into ad dollars from advertisers, who are wary of the amount of user-generated content on the site.

Analysts estimate it earned some $65 million in revenue last year, and other sources expect it will command 10 percent of the fledgling online video ad market this year-an industry that is expected to grow 45 percent to $850 million this year, according to eMarketer. But industry players say Hulu, like YouTube, is losing money, after sharing up to two-thirds of its revenue with its content partners, and paying for streaming and maintenance costs, estimated by one source to be $1 million a month and growing.