HULU Contemplates a Lulu

OK. This harkens back to those internet “go-go” days of the late 90s – get first-mover advantage and scale and the money will follow. Sounds like the script for the movie Field of Dreams… “build a better product and the customers will come,” which as a marketer often working in the tech sector, is a line I hear all too often.

If what I just read in Business Week (“HULU’s Tough Choices”, Dec. 7, 2009) is any indication, HULU, the very popular free video streaming site with 40 million downloads per month (second only to You Tube) has run up a $35 million annual loss and is suffering just such a fate as the web bubble did.

HULU is not just an ordinary site. Funded in part by NBC, Fox and ABC, HULU was the film/video industry’s response to the technological disruption of FREE that had obliterated the music industry and with the prevalence of cheap bandwidth and storage, was heading it’s way. They saw how the music industry not only lost control of the new now dominant digital distribution channels but also found itself rendered obsolete, and did not wish to suffer the same fate.

One of the experiments put forward was HULU and lo and behold, I can get yesterday’s episode of 30 Rock and all sorts of video and film content on demand (1,700 titles) playable on my computer any time I want. And with WiFi-enabled LCD flat screens upon us, let alone the ever easier ability to integrate TVs into our home networks, this free content on your HiDef TV is nearly a reality. Or is it?

If the Business Week article is to be believed, the era of premium content at HULU is upon us. In other words, content we will have to pay for. And what is to be the price for this content? Your premium cable service!

Wow! Let me see if I have this right. Here comes this disruptive force of free streaming video content sponsored by the broadcast and film industry. It’s ad supported model is not really sustainable, at least right now. So yes, those happy days of free content appear to be coming to an end. And now the industry in its wisdom is telling us we may have to pay, and the way we will pay is in support of the what were soon to be disintermediated cable TV interests!

I mean after all, do we need cable anymore if a thriving online channel is delivering this content through our medium of choice through our server, versus the cable box? I guess the cable industry saw the handwriting on the wall too and isn’t about to go quietly into the night.

We could spend all day trying to figure this out. Is the Comcast acquisition of Universal (and NBC) from GE a factor in this equation? I will leave this to others to decipher.

My beat is marketing, and the question on the marketing side is, is this the best you can do, HULU? You have built a brand, you have scale, you have content and now you want to punt, snatching defeat from the jaws of victory while the experiment is in process? What a waste for you and the viewers who love you, and if my students are any indication, many do.

We all know that it is one thing to point out problems, another to pose solutions. Marketing is all about solutions, so let’s see what we can come up to get HULU out of this mess, knowing their ad model as currently in play isn’t sustainable.

Recommendation #1.
Up the value of the advertising.

How so?

As I see it from the outside, HULU has been a pioneer of offering choice to visitors? Watch the long ad and see the show uninterrupted… or choose the shorter ads sprinkled throughout. This is a great start.

How about going further and offer viewers even more choice? Offer a menu of ads by type and even product. Let the viewer self-select their ads of interest.

You can be high or low tech about it too. Low tech… base the ad offerings by the show, or if you want to be more slick, apply behavioral information to narrow down the choices based on each visitor’s clicking habits.

How does this improve value?

  1. You are empowering your viewers with more, not less control
  2. Ads are more relevant as a result
  3. And in doing so, viewers actually act and “raise their hands,” which direct marketers know is the most costly and difficult part of the customer acquisition process

What this means is that response and conversion rates should be higher and I will argue in the absence of evidence either way, at least worthy of testing. And should indeed response/conversion rates improve, the value of the advertising will go up and command a higher premium.

And one other point. Advertisers could be charged based on actual visitor selection and or performance. If viewers don’t click, they don’t pay. And when visitors do engage, they pay more. Integrate some interactive promotions and calls to action for those that do select and powerful interactions can take place.

Recommendation #2:
HULU Ju Jitsu

I see HULU as more than a platform for streaming video… free streaming video on demand. I call it a Network of One. It is our own personal Video network, programmed by us just the way we want it, with the content we love, when we want it and hopefully soon, where we want it too.

The motor that has driven it’s success to date as the second most visited source of streaming video content is the fact that it is free. Don’t kill it! Use it! Since Fox, NBC and ABC are principals, create premium content that bring fans closer to the shows, films and actors they love with interviews, webcasts, blogs, tweets, contests, and even closer interactions and behind the scenes access. Create opportunities and other reasons to join fan clubs and other communities and pay for the privilege based on the degree of proximity and interaction.

Peel off some percentage of 40 million for tiered service and subscription packages that supplement the free streaming content, and some interesting numbers come into play. 1% of 40 million is 400,000 prospective customers. Find reasons to get them to pay up to say $100 per year for something special above the free content… well you get the idea.

For one thing, HULU is no longer operating at a deficit. Up the percentages… every .1% is 40,000 customers afterall, and the return can be even more radical. Personally, I would love the opportunity to win a lunch with Tina Fey, a comedic genius if there ever was one.

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