Wetpaint CEO Ben Elowitz on the Future of Digital Media
As you know, I’m obsessed with figuring out the future of digital media. And to do that, there’s nothing better than putting stakes in the ground – based on the best available information and sharpest analysis I can muster – and then checking back to see how they held up.
In the last couple of weeks, two of the calls I made have come true; and that offers us a great opportunity to re-visit them, and see what we can learn from them.
Hulu Plus: Great Experiences Worth Paying For
First, Hulu Plus, which is thriving with over 1 million consumer subscriptions.
A year ago, when success seemed far from likely, I went out on a limb and estimated that Hulu Plus would have huge traction with consumers, surpassing $100 million in revenue in 2011. As it turns out, Hulu’s growth with its subscription product has been even faster than I expected – albeit with lower revenue per customer, given to CEO Jason Kilar’s smartly aggressive pricing, and the resulting much higher consumer adoption. The result has been substantial corporate revenues that have helped make Hulu market itself, enticing suitors to break it free of its complicated parent-company structure.
Content licensing agreements may still represent the greatest complexity of Hulu’s business under any ownership scenario, but what’s been a fascinating expectation exceeder is that by delivering the most desirable content and consumer experience, Hulu has gotten consumers to open their wallets in droves. That’s something that we can all learn from.
PayPal Acquires Zong: Making Payments Easier
And second, EBay’s PayPal, which recently bought mobile payment company Zong for $240 million.
Back in June 2010, I strongly recommended this deal and pointed out its many advantages. Indeed, Zong’s payment system makes it easy for consumers to pay – leveraging the addictive relationships people have with their mobile phones.
As my newsletter readers know, I recently updated my formula for consumer spending on digital media.
The Consumer Media Spending Formula:
(Desire + Relationship + Ease) X Scarcity = Spend
Now both of these transactions are reinforcing it for me.
The Future of Consumer Paid Media
Beyond that, these two announcements also tell us something important about the rapidly approaching future of digital media: increasingly, the industry will be relying on consumers to contribute toward its profitability.
Now it’s up to us to create great content and meaningful experiences that are worthy.
A Bonus Prediction: Apple Versus Facebook in 2012
And that’s why I’ll take this opportunity to make a bonus prediction.
By this time next year, we will be in the early stages of what will later become an all-out war over who will be the master payment and currency provider for digital media. Even as Paypal has made significant upgrades with the Zong acquisition, they won’t be enough to ignite Paypal as the leader in the key venues: on the social networks and in mobile applications. Instead, this online conflagration will, I believe, be waged primarily between Apple and Facebook Credits.
What do you think? And what’s your favorite digital media prediction for 2012?
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
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.