Friday, 27 March 2009

Online Video: Has Hulu Found the Business Model?

Lest we forget, modern copyright is ultimately about monetization. Nowhere is this first principle more apparent than in the world of user-generated content, especially of the visual sort. YouTube may have zillions of viewers and a seemingly endless number of users willing to share visual content, but YouTube, and its owner Google, still struggle with how to turn YouTube from a social phenomenon into a viable business model. It is not surprising, therefore, that the search for how to monetize visual contents on the Internet goes on.

One notable attempt--Hulu--was reported last month in The Economist ("Hulu Who?", February 7th). The article can serve as an elegant primer for anyone interested in the complex matrix of considerations of how to turn content into profits in the online video world. According to the article, YouTube as a business suffers from three overarching problems: (i) Advertisers and brand holders are wary of being connected with user-generated content; (ii) the content is too variable and may turn off viewers in unpredictable way; and (iii) a sizable amount of the contents was illegal and has attracted law suits from media giants.

Based on these uncertainties new entrants, according to analyst Shadid Kahn, had to confront the following questions in fashioning their alternative to YouTube: (i) How much to rely on user-generated content as opposed to commercial content?; (ii) be an aggregator for numerous media providers, or focus on delivering the content for one provider?; (iii) distribute the contents via the user's computer to a user-held device, such as the IPod, or stream the contents; (iv) if streamed, is is better to do via a dedicated application on the user's computer, or to enable viewing inside the web browsers; and (v) charge viewers or rely on advertising?

User-generated contents: but will they still watch it tomorrow?

Enter Hulu in 2007 --a joint venture of NBC Universal and and News Corporation. Hulu, and particular, its CEO Jason Kilar, formerly of Apple. Already in December 2008, 216 million videos were viewed, advertising is fully subscribed, and the impression (unverified) is that Hulu is generating revenues in a way that point to a viable business model.

So what is the Hulu business model? There are at least four basic elements: (i) Eschew user-generated contents and use only professional content: (ii) aggregate content from many sources, despite the fact that the two partners is each a content provider on its own (Universal and Fox); (iii) streaming through the browser rather than downloading to the user's computer by means of special applications software; and (iv) rely on advertising rather than charging users for downloads.

I said Hulu, not Hula

So will Hulu win out? Prophesy is beyond the ken of this blog, but we would note the following. there are substantial competitors to Hulu, such as Apple and, a streaming service owned by CBS, and there is no doubt that others will surface. It is possible that there is room for more than entrant, each of which provides a somewhat different mix reaching its own distinctive audience. Hulu may itself modify its model to reach out further (already there is talk of enabling downloads which will be funded by user fees rather than advertising revenues). Moreover, in the short term, at least, the appetite for advertising may soften in the face of deteriorating economic circumstances. From the business point of view, it will be fascinating to see how all of this plays out.

One final comment is in order. The Economist report mused that the decision to stream via the user's browser was perhaps the most crucial decision in accounting for Hulu's early success (particularly in that allegedly left rival Joost, who charged for user downloads, far back in the pack). But being an IP person, I believe that the decision to rely on professional content is no less important. Copyright may be, as we never fail to tell our students, the most democratic and omnipresent of IP rights, but mass itself is neither necessary nor sufficient for commercial success.

Like it or not, even the most repulsive example of reality show contents is the handicraft of content professionals, while capturing one's cat on video, engaged in some momentarily eye-catching antic, is not. Not every professional content will presage commercial success, but it seems more likely to be a prerequisite (necessary, but not sufficient, if you like). I do not think that the online video world will prove to be any different.

Even cats like Reality TV

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