Wetpaint CEO Ben Elowitz on the Future of Digital Media
I’m not the Amazing Kreskin, and I hardly consider myself a visionary prophet. I’m just Ben. But I happen to live and breathe the digital publishing business because it’s my professional passion.
So, I was quietly surprised to read this week that Hulu’s subscription video service will surpass one million subscribers in 2011.
I was taken aback by Jason’s announcement – not because I doubted Hulu, but because I somehow managed to predict the Hulu Plus subscriber number exactly a year ago.
Indeed, a year ago, in April 2010, I said: “I expect that the service will reach or exceed a million subscribers by the end of 2011.” (See my April 23, 2010 prediction here.)
In life, like baseball, sometimes you win; sometimes you lose; and sometimes you’re rained out.
But the W’s always feel best.
Good job, Jason!
And for the record: I continue to be bullish on Hulu. As long as it can keep its content license agreements humming, it will have a killer collection of content, plus killer experience, to offer consumers; it also has killer context to offer advertisers. And that’s a formula for great success.
Recently I’ve written about why I think the Hulu Plus subscription model will be successful. Yesterday, Peter Kafka (@pkafka) wrote in AllThingsD that Hulu’s price point is both too high for consumers and too low to satisfy media companies. I respectfully disagree.
My prediction is that Hulu Plus will be driving more than $100 million in incremental revenue for the company in 2011. If Hulu grows modestly from its current 19.5 million monthly uniques in the U.S. according to comScore*, and they’re able to convert a small fraction of that audience at $9.95, the numbers are compelling even accounting for the likely double-digit monthly churn. I expect that the service will reach or exceed a million subscribers by the end of 2011. Meanwhile, 30% margin or $30+ million would be welcome for a company that only recently announced profitability, particularly if they’re able to avoid traffic cannibalization on their existing free, ad-sponsored streams.
Granted, most media companies are making more on their own sites, but this is largely upside to their existing online revenue. Meanwhile, a paid model preserves the “premium” value of the majority of their catalog.
Beyond the financial benefit, offering a paid subscription also provides several strategic benefits to Hulu:
Is $9.95 monthly too much for consumers to pay? When your content is exclusive, and more importantly, the experience is this compelling, I think a small but meaningful segment of customers will open up their wallets. Of course, that is assuming that Hulu’s subscription offer and experience demonstrate the same outstanding execution as their free service (and marketing) to date. Many services have failed at charging for video online, but Hulu is in a unique position to finally succeed.
* Footnote: Interestingly this is substantially less than the 43 million uniques announced by Hulu CEO Jason Kilar back in December, perhaps due to the comScore hybrid measurement debacle; I’m using the lower numbers to be conservative
Dawn Chmielewski and Meg James reported tonight that Hulu will begin testing a $9.95 “Hulu Plus” subscription offering as soon as May 24. According to their LA Times article, the Hulu Plus offering will open access for viewers to watch many more shows than are currently offered. (Hulu’s content license restrictions currently allow viewers access to only the five most recent episodes for most shows.)
Last month, I wrote that for Hulu, advertising won’t be enough. Tonight, I predict Hulu’s subscription program will be successful with consumers, and will be a business success for Hulu.
First, here’s why — unlike many other subscription programs — Hulu’s will work:
Net, this is an impressive combination. Unlike many of the subscription offerings being floated by others, which move information that can be found in many places behind a paywall, Hulu’s offering is unique enough and compelling enough that it’s worth consumers paying for.
As for the business benefit to Hulu, they are already receiving high monetization. At reported $100MM annualized revenues over comScore-reported 695MM pageviews per month, Hulu already monetizes at $12 per 1,000 pageviews. Even if subscribers view 10 times as many pages per month as average users, Hulu will still more than double its revenues from those customers.
With an outstanding value proposition and great monetization potential, this subscription program is a win-win for Hulu and its audience.
VentureBeat featured a guest-post from Transpond’s CEO Peter Yared yesterday, and editor Matt Marshall asked me to offer a comment for inclusion.
Peter presents an argument and five predictions as to the balance of power and profits between Hulu vs. its corporate constituents tilting back further towards the content owners:
Hulu sells ads on the video it streams, meaning that Hulu’s ad sales team competes with the networks’ own ad sales teams. Hulu’s sales pitch to the networks was, “let us compete with you on your new content and we will help you monetize your older assets”. But Hulu hasn’t been able to monetize the older TV shows it runs. Pull up any TV show over two years old on Hulu, and all of the ads are public service announcements.
But the original reason for Hulu was not that the networks thought they couldn’t monetize their inventory, but because they believed in the power of a single consumer destination with major network effects. And that is by and large working.
As I responded in the VentureBeat post, Hulu is working and it’s because they nail their consumer experience.
It is inevitable that in the digital future, consumers will watch what they want, when and where they want it.
Michael Learmonth at AdAge published an analysis today of Hulu’s financial conundrum: while Hulu wants to remain purely ad-supported in order to grow its audience, it is struggling with the economic realities that make its current advertising-only model lackluster.
But while Learnmonth’s article portrays “an ideological battle over its future” of whether to stay solely ad-supported vs. consumer supported, I can’t help but read his analysis and take away that it is inevitable: for Hulu too, just like for the rest of the media industry, a healthy and sustainable model will only be reached when consumers pay for content.
Hulu has attained remarkable success. It’s the #2 video site by audience, and has created a true breakthrough consumer experience for video that is best in class — and miraculously not only survived the minefield of investor and content provider relationships but prospered with them. But with the hefty 70% revenue split paid to content providers, Hulu is still challenged to make money on a standalone basis. Just as the TV networks themselves have seen, the dual (consumer+advertiser) revenue streams of the cable and satellite systems create a much healthier model.
Hulu’s struggles are just another case of how — almost no matter how large the publisher is — advertising revenues are no longer enough for a healthy publishing model. With an explosion of content created and the huge dispersion of where consumer eyeballs land, the advertising dollars can’t be piled on the way they used to be for the top publishers of content.
It is time for Hulu to — creatively — start offering premium consumer services.
The good news is that Hulu is in pole position to succeed at getting consumers to pay part of the bill. Under CEO Jason Kilar’s leadership, Hulu has demonstrated that they are extraordinarily strong at product development and partner relationships in a way that lets them make a surprisingly great experience for consumers even with the myriad license restrictions that they need to deal with on the back end. On top of which, their proprietary content library is worth billions and has earned them destination value for consumers. They’ve got advertiser relationships and track records, and have even established a strong premium pricing precedent at reasonable fill rates on the ad side so they can keep their appeal broad with a free basic offering.
With those great assets, Hulu has the opportunity to build new applications, content packages, features, and other enhancements that are compelling enough to earn consumer payment. All of which will put them in a healthier position to not only make profits for themselves, but for their partners. In fact, for Hulu, it’s not only for the good of themselves and their partners that they should add paid offerings, but for the good of the industry in pioneering the best ways to offer experiences the consumer will pay for.
Viacom this week told Hulu that it is pulling its content out of the video site because they couldn’t reach economic terms that value The Daily Show and Steven Colbert to Viacom’s satisfaction. Brian Stelter reported the story for the New York Times this week, quoting me with reference to the ‘game of chicken’ that Viacom has been playing with Hulu. This game plays to chairman Sumner Redstone’s strengths, as he’s already presided over the protracted “off-again, off-again” conversations by which Viacom’s sister-company CBS has held out from Hulu.
But these negotiations over how to divide the pie miss the opportunity altogether. Against all odds, Hulu has surprisingly created a successful consumer destination. With a great consumer experience, Hulu has become *the* destination for “official” TV video. While media executives fret the impending decline of television, the future has already begun to gel at the site with an audience of 30 million, advertiser demand, and premium monetization.
The shame is that Hulu CEO Jason Kilar and his team have their efforts drained by brinkmanship negotiations with the industry. What a waste of time! Instead, what would benefit all parties — Hulu, its equity partners, and the industry at large — is for Hulu to spend time on improving the consumer experience, enticing audiences, and monetizing. Further, Hulu may be in the best position of any media venture to command premium and subscription pricing from consumers — so additional content and scale could help make digital video more profitable. Unlike the drain of the power games that Viacom is playing, these constructive investments would have the prospect of lifting the fortunes of the media industry for everyone’s benefit.
While Hulu offers hope for the industry, Viacom crushes it.