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Analyzing Hulu's Success

May 2, 2012

 

Hulu, the popular video sharing and television streaming service, recently announced that it is going to increase the amount of money it is spending on producing original content by 67% to $500 million.
Hulu has already started investing in original programing, producing shows like ‘Battleground’ and ‘The Confession.’  

Hulu has also explored other avenues for producing unique content, partnering with different companies to produce videos.  For example, Hulu partnered with Dasani to create a series of “Earth Week” videos about different endangered species.  

Hulu makes a vast majority of its money from advertising, but continues to explore other revenue streams.  For example, two years ago, Hulu launched Hulu Plus, which charges users 8 dollars a month to access a significantly larger catalog of content.  Hulu Plus recently announced that they have over 2 million subscribers.

Hulu has also expanded how viewers can experience advertising.  Aside from simply running standard 30 second ads before videos, Hulu also allows users the option to pick the type of commercial they want to see, along with occasionally allowing the viewer to see a longer ad (sometimes up to 3 minutes in length), so the user can watch the rest of the video uninterrupted. According to Steven Farella, the chief executive at TargetCast, ads placed on Hulu were more effective than ads placed on TV:

“On a one-to-one basis, advertising placed on Hulu for our clients was more effective than advertising palced on television for the same programing.”

All of these options have helped Hulu grow tremendously as a company.  They currently average 38 million visitors a month, and Hulu Plus subscriber growth has increased so rapidly that Hulu believes it will account for over half of the companies total revenue in 2012.

The interesting question here is whether all of these moves will help ensure Hulu can survive.  Hulu faces several obstacles to grow, including stiff competition from companies like Netflix and Amazon Prime.  

Netflix, in particular, is a major competitor for Hulu.  Although Netflix users have to pay a subscription fee, they also allow users to watch their videos uninterrupted and have a significantly larger catalog of movies than Hulu.  

Also, there are competitors in the video-sharing community.  For example, YouTube has committed to spending near 100 million dollars to boost its library of premium content, double what Hulu will spend.  Also, video piracy websites are a problem, as users can easily download TV shows from BitTorrent for free.

Despite this stiff competition, I believe that Hulu has a great chance to survive and thrive.  For one, Hulu has a very solid base of support, as the ownership structure of the company involves TV executives from News Corp, NBC Universal and Disney.  Also, Hulu has done a great job of not staying complacent, recognizing that they must keep adding services in order to continue their growth.  By creating new ways for users to interact with advertising and watch content, Hulu can ensure that users will stay engaged with the product.