For Hulu Too, Ads Won’t Be Enough

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.

Is $0.99 The Way To Change Consumer Behavior?

At the 2010 Media Summit conference last week, Arthur Sulzberger and Janet Robinson talked more about their get-consumers-to-pay digital strategy.  While they didn’t reveal any major new details, they did expose a couple of wrinkles by implying that there will be more apps and value-adds that they will look to upsell consumers on.

When I asked them about training consumers to pay for content, Arthur Sulzberger initially brushed it aside saying their “loyalists” are willing to pay for their intensive usage.  I pressed further:  what about getting the mass market of consumer audiences – not just the heavy users – to start opening their wallets?  Sulzberger’s reply:  no new behaviors are required.

Sulzberger got it wrong:  getting consumers to habitually pay for content is certainly a change in behavior.  James McQuivey at Forrester recently looked back on decades of media models and called it:  “People don’t pay for content, and never have. They pay for access to content.”

But Arthur Sulzberger’s statement belied some of the actions that the New York Times is taking that are in synch with changing consumer behavior.  Early this week, Damon Kiesow at reported that the New York Times will be “disaggregating” their book review – in order to charge for it a la carte in appetizer-sized portions.

Which makes me wonder:  is bite-size the new way to get consumers to pay?

It has this going for it: between iPhone apps and iTunes songs, the bite-size purchase is absolutely the most successful model so far when it comes to changing consumer behavior en masse.  It’s easy, it’s fast, and it’s economical.  At about a buck, most importantly it’s stress-free and totally disposable.  It removes much of the barrier of consideration from software and media purchases that is present in other consumer-pay models.

Regardless of what its leaders are saying in public, it looks like the New York Times is betting on big changes to how people consume and pay for content: and that will come in packages big and small.

What Happens When Blogs Grow Up

Toward the end of a post at Reuters about a change to its RSS feed content, Felix Salmon notes that Gawker seems to be making a move “away from being a big blog and towards competing directly with the likes of for serious online traffic.” He further predicts (and got Gawker owner Nick Denton to confirm) that the next step would be “to rejigger the home pages” of his blogs towards an edited format.

While Salmon calls this the beginning of the end of an era, that period that it marks the end of (for Gawker) is called “childhood.”

The blog is the microwave oven of the publishing kitchen:  it’s fast, convenient, and gets ideas heated up and out on the table quickly–without a lot of deliberation, mess or hassle.  A blog is a fantastic toolset for anyone who wants to get a site started quickly and publish with ease.

But it’s no surprise that when a publisher gets serious, it brings bigger appliances to bear.  Publishing done right creates experiences for readers.  The format of sequential entries is simplistic.  For any publication to get successful with a broader audience, it’s only natural that it must present not just a series of stories but a point of view on what’s important.  As Gawker’s traffic ambitions and business sophistication grow, so must its  presentation of itself to its audiences.

In this case, the surprise is not that publishers like Gakwer will grow up and out of the blog format:  the surprise is that this format has done so well for them for so long.

Quote of the Week: Carol Bartz – Not Much Rocking And Rolling in Media

From Abbey Klaasen’s AdAge interview with Carol Bartz this week:

Ad Age: You came into the advertising space as an outsider. What has surprised you about the industry?

Ms. Bartz: For an industry that’s based on creativity and inspiring people, I don’t know why it’s so afraid. I don’t think it should be afraid to just try some crazy new stuff. But when I talk to people about online marketing, they just seem to freeze. … I thought this was going to be a much racier industry that wore black and got out there and rock and rolled and I see it being a little shier. I mean, I’m the crazy lady.

Perfectly said, Carol.  The media industry has all the pressures that come from wholesale technology disruption:  the economics are collapsing, and no one knows quite what to do.  But the response  from too many media companies is to stand still while they shake, instead of moving forward.

Viacom Takes Its Toys and Goes Home

Tug of WarViacom 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.