Google’s foray into the online video market has been criticized by many. In fact, some believe that Google’s decision to acquire YouTube was one of the worst it has ever made, thanks to the confluence of massive copyright violations and Google’s financial backing, which gave copyright holders the impetus they needed to sue the popular site. Others believe that Google’s decision to enter the online video market and become a quasi-content firm wasn’t the best way for it to capitalize on the booming video advertising business. Either way, Google is now wholeheartedly invested in online video and YouTube is the centerpiece of its strategy.
YouTube’s Sorry Situation
YouTube may be wildly popular, but Google’s ability to realize a profit has been difficult, at best. The company spent $1.65 billion for YouTube and so far, it has yet to find a way to monetize it effectively and realize a positive return on its investment.
Estimates for how much revenues YouTube can produce are all over the place. While Forbes estimates YouTube’s revenue will reach $200 million worldwide this year and $350 million next year, Citi analyst Mark Mahaney thinks Google can make $500 million next year if it focuses more of its efforts on display ads.
But just because YouTube may be able to recognize revenue of $500 million next year, doesn’t mean it will. YouTube needs to do a much better job in the advertising department to get there. It has done little to allay many of the fears advertisers have about the content presented on the site—the limited success of its Video ID program aside. Whether YouTube, the business, can be as successful as YouTube, the video site, is still a big question mark.
For all its business challenges, YouTube remains the most popular video service on the Web. The site commands 34 percent of all Web videos streamed in the U.S. market, while the second-place service, MySpaceTV, only controls 6.4 percent, and Hulu brings up the rear with 0.7 percent (according to May, 2008 numbers from comScore Video Metrix).
Head-to-Head With Hulu
Hulu may not size up well against YouTube – in May 2008, Hulu served about 88 million videos compared to YouTube’s 4.2 billion videos – but it has the luxury of monetizing the vast majority of its videos instead of the three percent that YouTube can sell ads against. Three percent of 4.2 billion is 126 million videos a month that can carry ads—not much more than Hulu.
That pretty much levels the playing field in terms of revenue and profit potential. According to one estimate, Hulu could enjoy $90 million in revenue in its first year. And although it may not be quite as much as YouTube’s estimated worldwide revenue total of $200 million this year, it equals a Bear Stearns estimate for YouTube’s domestic 2008 revenue (of $90 million). Considering that Hulu mainly caters to an American audience, both YouTube and Hulu could see roughly the same revenues in the U.S. this year.
Unlike YouTube, Hulu isn’t plagued by copyright concerns and doesn’t need to worry about questionable user-generated content. More importantly, all of its content appeals to advertisers.
As Chris B. Allen, director of video innovation at Starcom told Forbes, “most of the momentum now is for ads within full episodes run on the TV networks’ sites, such as NBC and Fox’s Hulu, ABC.com and CBS.com. It’s a format that advertisers understand.”
But understanding the format is just a modicum of the business advantage Hulu has over YouTube. In contrast to much of YouTube’s videos, Hulu’s content doesn’t cross as many lines of decency and demographics are readily available. (Albeit, Google did launch Insight, its video statistics service, to help with demographic information).
If YouTube has shown us anything, it proves that there is a huge market for user-generated content. But from a business standpoint, professional content is the place where advertisers want to spend money and how video sites will solidify their financial position. Athough Hulu will probably never grow to the size of YouTube and Google can use that size to its advantage, Hulu’s own advantage is its ability to draw advertisers to the content that more effectively attracts their target audience.
The heart of the issue is the value of mainstream versus niche buys. Advertisers want to place ads on videos that they know their target audience is watching. YouTube has started to make a push for professional content as of late, including a deal with Family Guy creator, Seth MacFarlane. But it needs to work harder to solve the problem of making money from its costly user-generated content, which is not only the vast majority of its videos, but also the content that most advertisers don’t want any part of.
In contrast, Hulu is the epitome of a video site that has capitalized on the inertia of the industry by providing users with content they know and can enjoy, while making it a service that would appeal to practically any advertiser.
Advertisers are throwing money at Web video, but who is going to capture that growth?. According to eMarketer, online video advertising will amount to $1.35 billion this year and Google, a company that controls more than 30 percent of the U.S. video market, can only attract 15 percent of advertising spending this year. As more advertisers look to spend money on online videos and continue their search for professional content with dependable demographics data, Hulu could become the service of choice.
We can’t forget that Hulu is still in its infancy and quite a bit can happen between now and when it becomes a more powerful brand. But we also can’t forget that it’s quickly becoming the place where TV and film studios – organizations that have historically distrusted the Web – want to place content for free on the Internet. We also can’t forget that YouTube is public enemy number one for those studios because it was once (and still is, to some extent) a haven for copyright infringement.
All Google needs to do to ward off the Hulu threat is to make a little bit more of its video inventory appealing to advertisers. Not much, maybe 10 percent.
But if Google doesn’t lure more professional content as quickly as possible and do its best to monetize user-generated content, Hulu will gain ground financially and could solidify itself as a big money maker in the industry. Perhaps even bigger than YouTube. All the while, Google will keep spending millions each quarter to pay for YouTube and desperately search for business models that will one day hopefully see it turn a profit, while NBC and the rest laugh all the way to the bank.
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I see more ad revenue in Hulu however the videos are not user-generated and that’s why it has a lot of market. I don’t think it would make sense to have in-video ads in the user’s video just because of the inconvenience, no one would use it if so.
Eventually, smart usage of in-video ads will be the key to monetize such content. Merely employing display ads along video content is not sufficient anymore: they have very very low eCPMs nowadays, and they lack the interaction levels smart advertisers are looking for.
In my opinion, the battle to monetize video content will be won by the ones who understand and are able to create new advertising products, specifically designed for in-video / in-stream content, and will move away from simply throwing in some pre-rolls or untargeted overlays.
Great post Dan! We need more of these! Very enjoyable to read
Can Hulu Be A Bigger Business Than YouTube?
No.
Yep thats true, how can someone compare a never heard brand with U(you)Tube?
Hulu is a pupular site in US and if something is popular in US,it’s certainly a success in itself.(the toughest market to crack,i suppose).
And talking about the business it makes,Hulu surely has its edge in effective monetization but still Youtube,with all its massive usage,if finds an effective(which Google has to find out today or tomorrow) monetization strategy without hurting/frustrating its users,youtube will find itself on the peak…I believe it will
Interesting, dont know I can agree with it. I think no..either
Forget Hulu, cast an eye over blinkx.com, it is growing far faster than Hulu and already has major deals in place with the majors….
I don’t think so. YouTube is still the best.
http://www.KidTechGuru.blogspot.com
Is TV bigger than YouTube now? Yes. Then, yes, Hulu will be bigger than YouTube.
As a resident outside the US, Hulu must provide videos to international streamers, which I believe it will, in order to be successful.
There are a lot of technologies which YouTube can utilize such as In Video ads and allowing videos to be downloaded with ads at the end of the video (like Revver).
I have always been a fan of YouTube and will be happy to see them move forward under the Big G’s admin.
Wow…. and Revver did well “NOT”
It really depends on how Hulu structures itself and what YouTube does in the future.
As of this date, I’d be surprised if Hulu wasn’t making more money than YouTube. Given the amount of pro content on Hulu and the recognizable brands on Hulu, it absolutely should be making more money than YouTube.
YouTube is not considered as a destination site for watching consistent programs. LG15 is an exception to that rule. If I want to watch Revision3’s content, I’ll go to Revision3.com or subscribe via iTunes and not YouTube. On the other hand, Hulu is considered a destination site. If I want to watch re-runs of The Office, I know where to go. Until and unless YouTube can resolve this issue, the chances of making a significant amount of money are rare.
- Aanarav
I agree. If Hulu’s revenue isn’t more than YouTube now, it will be.
When user watch professional contents on Hulu, advertisements are being forced down their throat. So — if you watch a 40min episode, you probably watch 4-5 30 sec advertisements that you can’t skip.
Hulu is a replacement for TV, YouTube is just a place to waste time, the potential can’t even be compared unless YouTube can form partnerships and start putting pro content on there
I agree wit Ray. Even though YouTube is the most popular now, but it can’t ignore the rise of Hulu that offers smarter concept of video advertising.
“YouTube is just a place to waste time…”
And TV isn’t? Your argument only makes sense if one assumes television has redeeming qualities that YouTube doesn’t. Both are a waste of time unless the content being consumed is of value to the consumer.
Mark
As long as we can’t use it in Europe I seriously doubt that.
I’m so tired of seeing messages like: We are sorry, but you are outside the US.
BS! This is the interwebz…there are no countries!
I still call it: Geodiscrimination
There are easy proxy services you can use, such as AnchorFree.
I think you’re right. Hulu should be an international service.
That may be the one thing that gives Youtube time to catch up. Hulu is unfortunately still tied to a TV model for video, which means that they can’t go around international distribution as easily as Youtube can. The syndication fees received for a popular show like Heroes are probably a lot higher than internet ad revenue.
If users in the UK can watch the video on Hulu or NBC’s site, why would the BBC pay as much for the rights to air it in the UK? My opinion is that opening to UK users could drive traffic back to the BBC, but networks aren’t likely to see it in the same way.
To add to YM Ousley’s comment, syndication fees and advertiser localization are likely the biggest reasons it’s taking so long for them to go international. I don’t think an advertiser for a US-only product would pay to have the ad shown internationally where it couldn’t generate business for them, so Hulu has to find international advertisers.
Youtube will still be a leader for years to come although competition is stiff.
http://www.lagusempoi.blogspot.com (the best MP3 songs for you)
Google still have huge financial power to advertise and compete in the video online market
Thats for sure
http://www.funpiz.blogspot.com (Laughter is the best medicine)
I need to become more aware. However, my question how can the user collect some revenue and from which platform?
It’s all down to content models. Where as YouTube is known for the user-submitted trash, I suppose (this comes from someone who’s British and doesn’t really know), for more professional content.
This of course would mean that YouTube would make less from their content. YouTube would need to loose their current image to make lots of money.
NBC laugh all the way to the bank?
Have they figured out how to make money online yet? I thought they completely guffed the Olympics…
NBC gets a significant cut of what Hulu does business wise (this is omitted from the article above). The Hulu strategy is brilliant because it established a digital group external to the Big Media company (and associated bureaucracy). In Jeff Zucker’s eyes, NBC Universal is a “content” company, Hulu works perfectly in this model. NBCU creates the content, Hulu figures out “everything else” with generous revenue going back to NBCU.
How do you write a post like this and not talk about Veoh. Veoh has all of Hulu, CBS, MTV, ABC, and most of the stuff that YouTube has. Lots more traffic than Hulu, and tons of media investors. Who the hell cares about Hulu? The real fight is between YouTube and Veoh. And now that Veoh has been vindicated in the courts, I would argue that it is the real contender to watch.
Exactly. Spot on comment!
…how about because there are large differences between what YouTube, Hulu, and Veoh are all doing?
Veoh is licensing content from either Hulu, CBS, ABC, etc… therefore they are acting as yet another distribution outlet. For what it’s worth, the content they carry from “Hulu” is of reduced quality (due to the fact it is played via. the low quality Hulu affiliate player).
To be fair, YouTube/ Google face a significant hurdle with content owners because 1) another business unit in Google is attempting to subvert the advertising arm of these companies and 2) the industry in general is upset with the pattern of use that YouTube perpetuated (e.g., upload & freely distribute copyright content). Eventually, I would assume we will see YouTube begin more aggressively allowing content owners to rev share on ads; however who would do this when YouTube can barely get ads on the site itself (how many ways can you cut penny cpms?)
Ultimately, Hulu and the others “win” but Hulu’s competition comes from its own success. Hulu essentially competes against NBC.com, Fox.com, etc… so will users find Hulu a better experience or the network sites themselves (who enjoy heavy on air promotion and in some cases links to the story line [The Office, Dunder Mifflin Infinity]).
Thank goodness for Hulu and now theWB … helping me save $$$ my prior cable bill
Off topic ….
Who the heck is this Neil Patel and why does TC link to his site from all pages?
I think so.
Hulu has quality content and can draw mainstream viewers. Eventually all eyeballs will start moving to the web and Hulu has solidified itself as a trustworthy provider during the first stage this new age.
The amateur UGC on YouTube is atrocious, and advertisers don’t want to align their brands with untalented and untrusted producers. I think you will continue to see AdSense style Google ads next to YouTube videos, but the model will never evolve.
With Hulu, the content is trusted and in most cases already has a built in audience. I don’t know what kind of metrics Hulu provides to advertisers, but due to the nature and source of the content they provide, advertisers will be able to make educated decisions, form partnerships, and achieve higher ROI.
YouTube will always have more inventory than Hulu, but there is no point in comparing coal to diamonds.
You keep quoting that eMarketer study, but I think that’s been lowered, and also counts only media spend (not special programs). What if YouTube could show that advertising around consumer-generated content (at a low cost) won’t harm brands and can drive ROI? Then a lot more inventory is at play- even at lower cpm.
I think no but YouTube have to develop an efficient business model…
hulu? dou?
so, content is king? you could have just written that, end of story.
it’s the oldest internet mantra and it’s just as true today as it ever was.
I think no but YouTube have to develop an efficient business model…
“YouTube’s Sorry Situation”
Sorry situation being undisputed number one?
Who wrote this propaganda for you, mike arrington?
This article doesn’t make any sense. Hulu is not on the same market as Youtube.
Youtube is UGC and Hulu is content provided.
Don’t compare bananas with fried chichen
I think it is in the same market. It competes for the same eyeballs and that’s all that matters.
Alright, then why don’t you compare all the others like Veoh, Dailymotion, Joost , etc.
no one can beat Google (Youtube)
it might be possible if google will shuts youtube
Hmmm … no one can beat Google? Did you ever visit the web pre-Google days? Mate, anything can happen!
Well, considering the content, the quality e diversity of videos, Hulu have a little advantage against YT. But the second have something different, something who took him in first place: the easy. You can share from anywhere, with anyone, (almost)everything, and watch wherever you are. If one day Hulu availability comes to other countries, maybe no one cares about anymore. They have YouTube.
I don’t hulu will beat youtube in some catagories. Youtube is more for user generated content. I don’t see people going to hulu to watch some funny video. Or watching a tutorial.
I see people going to hulu for movies and TV shows. Family guy,House etc. The content of both sites are very differnt. The revenue that hulu can makes will surley beat youtube. Google shouldn’t be trying to charge for youtube. Youtube is almost a public service. People help other people helping them through video.
Hulu was almost a kickback to Youtube’s priated videos. Thats fine and I am happy with that. I don’t see any of these sites going anywhere
Something’s missing here. What your pointing is the fact Youtube has still not jumped into a classic advertising process vs. Veoh and Hulu that have adapted the offline model to push ads into on-demand video. But is pushing ads in videos the real smart model? who cares about ads in videos? in the TV world, Tivo exists for the purpose of turning off ads. Why would we do the same for the web. There are so many ways to do it differently. Google has the power to make the digital world advertising change (like Facebook) and I hope they would move forward and think out of the box. Don’t do evil …
Didn’t Michael Arrington call Hulu.com ClownCo? I guess he was wrong about Hulu and seems to be wrong about much of what he says.
“How do you write a post like this and not talk about Veoh?”
Because Veoh requires a download. Hulu and YouTube don’t. Joost found out that folks don’t like downloads and is now scrambling to rebuild their service. The web-based model works. What is Veoh going to do when folks start watching stuff on phones, tablets, STB’s, etc?
You can get the internet on your TV - all you need is a $20 cable. Just Google “Zipityzap.”
Didn’t read all the comments, but did not find ‘Cuban’ on the page. Mark wrote an excellent analysis of the issues YT faces monetizing inventory vs. Hulu due to licensing issues. A cursory read left me thinking the author should have cited Mark.
I like Hulu a lot, and wish they would utilize it more. Advertisers are not taking full advantage yet of the opportunity of having multiple spots serially available. I watched with interest a series of Direct TV ads with Ed Begley — sort of built a story, but at the end of the show some early ads started repeating. One or two more quick takes, and they’d have had my interest throughout the show. Not sure when I’ve wanted to see “the next ad” in the last 20 years. Hard to duplicate this using pre/post/intra rolls on a YT 3 minute bit.
Veoh and Joost have already lost. Its amazing that Hulu rose to the top in only 5 months. Good job, Clown Co!
Love the classic Star Trek (my boy Kirk) and Saturday Night Live reruns on Hulu. One may rightly think it might not have been the smartest business move for Google to buy youtube … but I’m sure as heck glad they did. Why? We the public needed the big dog in the fight to liberalize the copyright laws. The movie and TV industry have gone overboard with the digital millenium act. It was a huge overreach. The people require some corporate interest with the necessary weight to push back. I can think of no greater champion for this quest than google.
YouTube could be far more profitable if they stopped this love fest with ads and focused on offering subscription services. There are a lot of things YouTube could do in this direction for businesses and even the more serious video makers. A simple $10 a month subscription to add a banner to your channel page is an example of this. To get this now you have to be a partner which means getting 1000’s of views. This is just silly. Who cares how many views a channel page is getting? All they are doing is limiting their profit by isolating their market to a small % of users on YouTube. In what business model does that make sense.
If copyright is an issue then let people sell their videos and music on YouTube for use in future videos. Just have a simple option where as a Tuber you pay $10 a month and you can sell your stuff in some stock video/audio place. A lot of times it would be cool to grab multiple videos and create a cool mix. You can do that right now by ripping the vids and that is a reality but some people prefer legal ways of doing things. Why not offer that option and let people do this offline. Meaning they can use the tools offline they know and love to edit stuff. I hate online editing.
Will Google do this? No because Google is in love with ads. Shoot even offering people the ability to see YouTube without ads would be another thing people might pay for.
This article forgets to mention that while Hulu will generate revenue they are turning a large portion of it over to the networks and content owners. If I recall Hulu really ends up keeping less than twenty percent? Therefore, they are much farther behind Google/Youtube.
Http://hmmconvenient.blogspot.com
Hulu sucks, they still don’t get it and still don’t have great content. We’re better - they’re wack
Jivox is a new competitor in the Online Video Advertising space and they have a pretty impressive offering. Check out their free demo for details.
Way to rehash what Mark Cuban posted about in June. Wake up.
The weakness in YouTube’s model is to reproduce the classic model by monetizing the content. They can never win in this model. Even if their copyright ID technology is 100% good, most content owners will say thanks but no thanks.
Youtube needs to find an alternate model such as Google’s search which is independent of the content.
Buckle in this is only the beginning of the online content war. You might want to take a look at http://www.filmchallenge.eworldmedia.com
Didn’t TechCrunch used to consistently make fun of Hulu? What did you call it, Clown.CO, or something like that?
Hulu certainly has the monetization piece figured out while YouTube is struggling to realize its revenue potential. The nice thing about YouTube for Google is that it should allow them a very large, high profile site to use to test display, rich media and video ad units. For Hulu, scaling internationally is probably their largest business opportunity.
DVWN is where it’s at.
Who cares? Both business models are already obsolete. YT is about the user content and Hulu is about the professional content. If I’m going to sit back and watch something for like 30 mins or an hour in a row, I NEED to be watching something professionally produced. Otherwise, I’d go nuts.
Amateur/YT vids tend to hold just a few seconds (or minutes, in some rare cases) of interest and so ads simply can’t be readily spaced in as they can with TV content. Once a YT video is done, the user needs to interact again, click something else, find something else .. watching YT is surfing the web, but with video. Watching Hulu is watching TV, but on the web.
We should all thank Google for YT and consider it for what it is - not only a loss leader but a public service. They should give up on ads altogether and declare 501(c)3 status for YT. The world needs a place to publish.
Hulu is not YT at all. It’s clear ads work with Hulu - TV was designed for ads, but the question for them is how to maintain clear value-add and identity in the years to come a world where content becomes commoditized (ie. widely licensed and available) at thousands of competing sites. They will be the biggest aggregator? That’s veoh. Widest video search? That will be google, eventually. The best experience? I do like that one and think they’ve done a great job with it so far, but Adobe and soon even Apple will challenge for that title, across PCs, TVs and cellphones. If their only value is in the exclusivity of their content, they’re not a long-term impact. If they are adding value to the experience (which I’m very happy to say I think they have done thus far), then they’re a contender. Hulu’s business model simply isn’t yet finalized as they’ve got to stitch in paying subscribers (like a cableco) and as for YT’s, it’s doomed.
whereas HULU:
… For now, Hulu is a U.S. service only.
Maybe in another decade it ll be bigger
love hulu such good quality not a lot of videos though
http://cashtutor.blogspot.com
You mention that YouTube’s content lacks demographic info for its content, which is the wrong way of looking at it. Ads should be placed dynamically according to users- not content. You can discern their demographic info based on the content they view.
Hulu got to be International