Barely Legally

Confessions of a Moot Court Bailiff

Hulu You Do So Well

I’m more than a little surprised by the rapid ascent of Hulu Plus. Take a look at these first quarter numbers:

  • They have 50% more advertisers in Q1 2011 than Q1 2010
  • On pace for $500 million revenue in 2011 (up 90% over 2010)
  • On track for 1 million subscribers (up from 0 in 2010)

I think the ad-supported model is working out pretty well so far. If Netflix (which has 20 million subscribers) is buying TV series, then why can’t Hulu someday? Showtime, HBO, AMC, NBC, and the rest are increasingly becoming middlemen.

So what happens to middlemen?

I think we all know: they get squeezed out in the digital age. In January, I wrote about Hulu’s new President, who had made statements to the effect that ‘online video is killing TV, because people expect entertainment for free with advertising.’ I pointed out that the big broadcasters like CBS, NBC, and ABC had done this for decades and made boatloads of cash in ads.

Let Me Rephrase That

The more accurate statement isn’t that online video is killing TV, it’s “the lower ad revenue from online video is not enough to replace the huge ad revenue we make from broadcast/cable video, and online video is getting more popular as broadcast gets less popular.”

This is not an online video killed the TV star” situation — this is a “supply killed the oligopoly” situation. There was nothing inherently better about having three TV channels. Sure the signal:noise ratio was skewed in favor of signal, because it cost so much money to keep a TV studio running (electricity having been invented the previous week, of course) that before you let a Lucille Ball stand in front of a camera, you make sure she’s funny.

But there were plenty of flops in the Era of Three Channels. The emergence of cable and satellite television gave us dozens, then hundreds, and now thousands of viewing options. Now you’re not splitting the eyeballs (and ad revenue) three ways, you’re splitting it three hundred ways. Oh, sure, no one is watching the Golf channel’s reruns of the 1979 Chevy Pinto Classic, so it’s not three hundred equal ways, but the supply of stuff to watch went up. No worries, right? The TV star is going to be okay.

The Digital Dilution

Now how did the oligopoly get even more diluted? The Internet. YouTube. Hulu. Netflix. The signal:noise ratio has skewed in favor of noise, but there is thousands of times more signal today than there was in 1960. Thirty-six hours of video are uploaded to YouTube every minute. Hulu has programming from 264 networks. Netflix accounts for 20% of the entire US internet usage during primetime TV hours. That’s insane.

The demand has grown, but the supply has exploded. It’s not online video that’s killing the TV star, it’s competition. The ad revenue isn’t necessarily going to go back up to where it was in 1960, or 1980, or even 2000. NBC and Fox own Hulu: they’re hoping to make some money off whatever kills the TV star. But it is killing the TV star.

And when this whole online video thing replaces broadcast as the dominant delivery method, who knows? Maybe there will be titans who emerge as having superior services, selection, or just lobbied the shit out of Congress and the FCC to murder net neutrality. Maybe the digital landscape will come to resemble the analog landscape, and ad revenue for these titans will be astronomical, because in the future there are more eyeballs. (Either because everyone watches TV Wall-E style in the future, or because we’re cyborgs with extra eyes.)