Hulu and the Future of TV

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SAN FRANCISCO-"When I was a kid, the bus would drop me off at 3:15 and I would race home to see the end of Speed Racer," said Hulu CEO Jason Kilar today at the NewTeeVee Live conference in San Francisco. "It was maddening that, no matter how fast I ran, I would miss the beginning. For me, changing the way TV is viewed is personal."

"Whenever you talk about Hulu and the future of television," said Kilar, during a keynote he called "On Having Conviction, Being Stubborn, and the Relentless Pursuit of Better Ways." "I come back to the passion of our team. I'm frequently asked 'What's the future of TV going to be like?' and my opinion, and that of my team, is that consumers will indeed get to a TV everywhere model of watching what you want, when you want, and that premium content will be delivered primarily over the internet."

"Our ambition is to be on any and all internet-connected devices on the planet," said Kilar, "but the economics have to work for both content owners and consumers. So it's not a technology issue at all but an economic model. We think we're ahead of the numbers-which I won't be sharing today-with Hulu Plus, and that's our goal in how to get on to internet-connected devices."

On the advertising side, Kilar pointed out that we've all faced the issue of seeing non-relevant content from advertisers who take a scattershot approach.

"We're moving beyond panel data-the type of research done by Nielsen-that shows the index of female to male viewers," said Kilar. "We'll now look at your history, whether you're registered or not, and we think we can get to within 1% assurance of whether you're male or female, versus the typical 35-40% of a Nielsen advertising model. For advertisers, we think they'll be able-over time-to eliminate the waste they've paid for over the past sixty years and will be able to have a targeted discussion with discrete consumers."

Kilar then spent a bit of time talking about Hulu's history and new features.

"In 2007, GigaOM ran a wreck watch, a countdown until the day we were going to be put out of business," said Kilar.  "We survived, and Om invited us over to speak both last year and this year. But how have we fared?

"We went to private beta 36 months ago, and in month zero we had ten advertising clients and two content partners," said Kilar. "We had no users and no revenue.

"Today we have 30 million users, 800 million ad streams and 235 content partners," said Kilar. "In quarter three, we have 352 advertising clients and expected revenue within the 2010 calendar year will be $240 million. That's up from $108 million last year.

"How did we do it? Honestly, the team is crazy, we have a certain view of the world that pushes us to create a different way to deliver content," he said. "As we pursue the mission, we aspire to create a service that users, advertisers and content owners unabashedly love. We're not settling, and we're stubborn."

Kilar minced no words when it came to advertising, including brand advertising, which is a $400 billion per year industry globally.

"Advertising is the future of television, whether it's traditional television or internet-based television," said Kilar.

He went on to explain that the content owner's dollar is split up into subscription, transaction, and advertising services.

"The transaction services make up about 30% of revenue, from the purchase of DVDs and the like, as do subscription services," said Kilar, "but advertising revenue is 41% of content. Which brings us to the relentless pursuit of advertising."

When it comes to the amount of advertising, Kilar said that it's a balance between fewer ads and more highly targeted ads.

"Lighten up," said Kilar, referring to ads. "We think Hulu should do the same, as we have from day one, so we've gone back to the early days of television for inspiration.

"Alfred Hitchcock Presents, in 1959, was 26 minutes long, with four minutes of advertising," said Kilar. "Today, with a show like The Office, it's doubled, with the show only being 22 minutes long. We think this is out of balance."

Kilar also mentioned the imbalance is a partial reason for the rise of the DVR: It lets you time shift but also lets you skip commercials.

Kilar then showed off a few new options for smart or interactive advertising models from within Hulu.

"We've launched Hulu Ad Tailor," said Kilar. "We provide multiple-choice decision points or surveys, giving the option of answering a question on a topic-such as whether you use a car or are in the market for one in the next six months-or watching traditional ads."

"Theatrical marketers have told us that the ability to watch the 2.5-minute full trailer is key to viewers connecting with the movie," said Kilar, "so we've offered the ability to watch the full trailer up front, and offering the value of eliminating any additional ads in the rest of the content."

But what if TV promotional spots were actually smart? Kilar said recommendations are key to the next round.

"We now offer a recommendation of other shows to watch, based on our algorithms, that match a show you're currently watching," said Kilar.

"We include content clips and an ability to vote on whether the recommendation is of interest to the viewer," he said. "We've seen a 10 percent response rate, which is almost ten times higher than the typical Internet-based response rate.

"In addition, we're now offering the ability to trade out the ad we present to you with an ad you'd rather watch," said Kilar. "If you don't want to watch this ad, we'll provide you an alternative to view one of three ads, via a pull-down menu, and the original ad's owners will not be charged for their ad."

How effective has Hulu been from an advertising standpoint? Kilar quoted from entrepreneurial and management guru Peter Drucker before revealing that information.

"Efficiency is doing things right, Drucker used to say, but effectiveness is doing the right things," said Kilar. "So are we effective?"

"Nielsen says that we're at 45% on brand recall," he continued, "versus 29% for broadcast prime-time. In addition, we're at 55% on message recall versus 22% on broadcast prime time. So, yes, we're very effective and we're charging higher rates for more targeted ads."

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