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I was wrong about Hulu.

December 27, 2008

I am absolutely willing to admit it.  When it came out, I didn’t think much about it.  I didnt’ see the justification in the studios yet again getting so deep into delivery (they’ve tried that.  It didn’t work for them last time.)  I didn’t think the TV advertising model would work.  I didn’t think they would be able to create a brand for themselves and generate sufficient traffic.  I certainly didn’t think all the networks and studios would be able to play together nicely enough, long enough.

Boy, was I wrong.  Hulu is now the poster child of broadband video.  In my opinion, Hulu has created success by understanding a few key things about the market better than most do:

  1. Inventory is everything. If there is one piece of advice to give a content destination with broad appeal, it is to make as much content available as possible.  YouTube wrestled marketshare away from MTV in music content because for years now, you could go to YouTube, type in just about any artist, and actually watch and listen to something. A significant factor in P2P networks adoption had to do with the availability of content, whether it be music or video.
  2. Timeshifting is a real and growing need.  People have been timeshifting for years now.  The ease with which you can do it has enhanced its entrenchment in consumer behavior.  From VCR’s, to Tivo boxes, to DVR’s to Hulu seems to be the progression here.  In our household, what we watch on TV, or what things we give priority to on our DVR, is dictated by what is and is not available on Hulu, or other network sites.  I suspect there are others like us out there.
  3. People are happy to watch ads if the content is good enough. People take specific aspects of consumer behavior, and attribute that behavior to the Internet as a whole rather than to the specific types of content that illustrate that behavior.  In other words, the fact that most people are only willing to digest 5 second pre-rolls should not be seen as established Internet behavior, but should rather be attributed to the prevailing types of content found on the Internet: bad content.  Hulu is proof that TV quality content is monetizable in TV ways, regardless of the platform it is broadcast on.

Unlike most people, I don’t really think Hulu is a great consumer experience.  I don’t think their information architecture is very good, and I don’t think the website is particularly effective at promoting other content.  However, I do think Hulu has created an amazing and simple utility that hits exactly where the consumers need it to hit: a huge library of content that can be viewed wherever, whenever. In fact, talk to Bernie, and he will wax eloquently about the money he is saving by not getting cable, and by watching whatever he wants on Hulu (ad supported) or iTunes (user supported).  I suspect many more will migrate to this model soon.

But there is a larger strategic imperative here that isn’t being talked about.  A year and a half ago, I wrote a blog post in my previous blog about online video players.  (You can read that post here.)  In it, I suggested that the main barrier these players (remember FireAnt, Joost and Democracy???) faced was actually getting the rights to interesting content from the broadcasters and studios.  Whoever DID get the content, however, would be in a unique strategic position: essentially marginalizing the cable companies core value proposition by reducing the entire broadcast value chain into a simple application that resides on an open network (this is essentially what VOIP did to phone calls).

What’s the point?  Viacom was recently in very tense negotiations with Time Warner around carraige agreements, amont other things.  Imagine how differently those conversations would have gone two years from now, when a million people are watching The Daily Show on Hulu every night instead of on the Time Warner cable system.

I might have been wrong about Hulu’s success.  But at least I was right about the trojan horse it represents.

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