Hulu is changing TV forever. Not because you can watch it on demand and on a computer but because...

1. Copyright KIT digital 2009
“TV Networks Should Be Afraid -- Very Afraid --
of Hulu ”
Source: MediaPost
September 14, 2009

2. Afraid of Hulu?
• If analyst Laura Martin is right, Hulu is the demon seed that will wipe out the
network television business as we know it. In a new report, the Soleil Securities
analyst estimates that the online video hub will cost TV networks $920 per
viewer in advertising if their audiences are cannibalized by Hulu. And she
believes the bulk of viewing on Hulu is indeed taking eyeballs from TV. It's not
the first time Martin has sounded the alarm on the rise of online TV. In a May
report she warned that the entire $300 billion market valuation of the television
industry is threatened by the shift of programming from TV to the Web.
Spearheading the overthrow of TV-as-we-know-it is Hulu, the premium video
site backed by NBC Universal, News Corp. and Walt Disney Co. that offers
content from 120 partners from the Food Network to Paramount Pictures.

3. Afraid of Hulu?
• As of July, Hulu had grown to 38 million
monthly viewers who watched 457 million
streamed videos, making it the sixth-most-
visited video site, ahead of competitors like
AOL, CBS Interactive and the Turner Network,
according to comScore.
• On the financial side, Martin estimates that in
2009 Hulu will still lose money -- $33 million
on revenue of $164 million. NBCU, News
Corp. and Disney are believed to keep 75% of
estimated revenue, or $123 million. With a
rapidly growing audience, high-quality video
and increasing revenue, Martin has little doubt
Hulu will succeed in the long term.

4. Afraid of Hulu?
• In its success, however, lie the seeds of value
destruction for its TV network creators. Martin's
prophecy of doom is built on the assumption that the
more content that becomes available on Hulu, the
more likely it is that consumers will cut the cable cord
altogether. Coupled with that trend is the less
attractive economics of online video, which may offer
higher CPMs but fewer ads.
• "This alternative is much worse than keeping 100% of
the ad revenue from the TV," wrote Martin. "Long
term, we don't expect the internet audience to ever
put up with as many commercials as there are on
TV." She adds that the convergence of the PC and
TV over the next two years will hasten adoption of the
PC as an alternative for watching high-quality
programming.

5. Afraid of Hulu?
• The report assumes the bulk of Hulu viewers use it as time-shifting device to catch up on
shows they missed on TV and to avoid commercial interruptions. Hulu CEO Jason Kilar
in April told Bloomberg that the site wasn't stealing customers from cable television.
• What would be useful is specific research looking at the impact Hulu has had on users'
TV-watching habits to inform the debate. While citing comScore figures showing the
growing audience for online video (158 million in July), it doesn't take into account
Nielsen's most recent Three Screen Report, which showed that people on average
watched 141 hours of TV compared to three hours, 11 minutes of Internet video in the
second quarter.
• How can the networks survive even if the threat from
the Web isn't imminent? Martin points to efforts like TV
Everywhere, the Time Warner-led initiative that would
require people to be cable subscribers to watch TV
shows online.

6. Afraid of Hulu?
• Or they might adopt the approach of CBS, which aggregates all its viewers and
sells them to advertisers at the same network CPM of $35, whether it was
watched on an actual TV or its TV.com portal. There's also windowing -- holding
programs off the Internet until after they aired on broadcast TV or through
syndication -- and simply charging an upfront fee as on iTunes.
• If nothing else, the report suggests the networks should at least quit airing those
popular Hulu commercials starring Alec Baldwin as an incognito alien using Hulu
as "an evil plot to destroy the world."
• But Martin is not amused: "Moving viewers from the TV to the PC is value-
destructive, and adding to the losses of Hulu by spending money on advertising
destroys value faster."

7. Copyright KIT digital 2009