When I caught up with Jason Kilar the day the Disney-Hulu deal finally was announced, the CEO was in a rental car in Atlanta on a mission to woo advertisersa task that should get a boost by adding ABC and Disney (NYSE: DIS) programming to the News Corp-NBCU joint venture. His Hulu.com blog post was illustrated with sculptures of the Seven Dwarfs.
But combine that additional programming with user growth fueled by buzz and a catchy ad campaign, and the image is more like Fantasia with the Sorcerer's Apprentice serving up ever-increasing amounts of ad inventory instead of buckets of water. When we talked about advertising and Hulu's business model, Kilar insisted the video service was ahead of schedule for 2008, Q109 and on the same pace for Q209, although he stuck to the same script he has since joining NewCo in the summer of 2007 when it comes to financial details: none. Hulu did send out some numbers it likes just before the deal was announced, data for March from *comScore* Video Metrix that show the site breaking into the top three places for video served. Here are some edited excerpts from our conversation about advertising, windowing, Hulu's potential role in authentication/TV Everywhere and more.
How does this change life for Hulu? The main way it changes things is that it moves us forward in a material way with regards to the content for our users. What I think will happen is we'll continue to grow, perhaps maybe even grow faster, which then enables us to deliver even more value to our advertisers. Advertisers care a lot about reach. They care a lot about recall rates of their brands and their advertising messages. And they care about things like purchase intent ... I think this relationship is going to help us do better for our users and do better for our advertisers.
I reported that this includes a two-year extension for NBC and News Corp. (NYSE: NWS), which will really gives you all three anchors for two years, which it seems also gives you a kind of breathing space to build out? Is that a wrong way to look at it? We won't comment on specifics but I will say that in addition to Hulu's relationship with the Walt Disney Company, I'm also very comfortable and excited about the relationship that we have with both News Corp and NBC Universal (NYSE: GE). I think that's a reflection of how this relationship has gone over the last nearly two years and where we're headed. I feel very good about the relationship amongst all three. It's still early though. When you take a look at where Hulu is today, we're about 13 months old in terms of the day you were able to access it without a password, which by any definition says we're still an extremely young company. We're very fortunate to have the investors that we have but it's still early days. We tend to be neurotic about the fact that we have to earn the right to serve users tomorrow. We take nothing for granted."
Hulu's had some good advertisers but I'm pretty likely to see a PSA a lot of the time when I look at a show and other people have pointed it out. Some people at Disney used it as a reason not to do a deal. What do you think you can do to shift the mix and also shift the CPM up? If you look at 2008 versus where we as a founding team thought we would be and where we ended, we were ahead of plan financially on a revenue basis. If you take a look at the ambitious goals that we set out for '09, we just closed Q1 and we were ahead of plan as well and we're ahead of plan in Q2. We're very excited about how things are progressing. With regards to the eality of growth ... we do our best to forecast where our business will be a month from now, two months from now, etc., but it makes it very tricky when something like the Super Bowl campaign happens and we see our business jump 49 percent at Hulu.com from the week before the Super Bowl and the week after the Super Bowland business has grown since then as well.
What you're seeing is a very rapidly growing service that is out in market on the advertising side trying to stay ahead of that demand from users. You would certainly expect when you see the numbers how quickly users respond and how we need to do a strong job projecting our available inventory and being out in market talking to advertisers.
Talking to the people at Disney, one of the things that made this finally sort of palatable to some of the people who weren't happy with the idea, is that the crossover was so small between viewers of ABC.com and Hulu and that they see a real opportunity there to reach a sort of casual viewer rather than the fan viewer. Is that a fair characterization and how else would you look at it? I think it's a very fair characterization. If you're a passionate fan of a given franchiseif you're the world's most passionate Lost fan, I believe you will go to the official Lost web site at ABC.com. I think Albert Cheng and his team have done an unbelievable job making a rich, deep strand for somebody who's over the moon about Lost. That said, I think there's a lot of people out there who quite frankly have yet to become addicted to Lost or perhaps a casual fan where they catch some episodes but not all episodes. Putting Lost in an environment like Hulu makes it that much easier to watch Lost for that casual fan.
Do you have a commitment to a big enough number of prime-time shows to continue to have that critical mass you're getting? Do you have a minimum guarantee from your content partners that you'll have "x" number of episodes? I won't comment specifically in terms of what the contract calls for. I will say this: this is an industry that didn't even exist three years ago, that just started then, and we're all figuring these things out like what's the right number of episodes, how to balance that with other opportunities that a content owner has. You're absolutely right that there are certain shows where I would argue and would think the contact owners have certainly acted in the fashion, which for serialized dramas where it's really tough to drop in in the middle of a season, that having more episodes up helps the cause a lot more We're all figuring this out. It's early days but think about where we are versus 36 months ago when there was no long-form content at all on the web legally.
You've already experienced what happens when users get used to content and it disappears. When It's Always Sunny in Philadelphia and its library went off the online air, there was an uproar. How do you prevent that from happening while you're experimenting? The Sunny example is a great example in Hulu screwing up, which is thatwhat we did not do, which was very badwas we did not give our users advance notice to say that the Always Sunny episodes were going to be taken down at the end of the month, instead we surprised people and that was a bad thing to do and we learned from that mistake. Now on every show page you actually see availability notes so they're able to actually consume the content in a schedule that's available for them before it gets taken off the site. (For instance, the note with Prison Break reads: "Due to streaming restrictions, episodes are available for 17 days.")
The lesson there was not that taking content down isn't going to happenbecause I think it will happen, it's the nature of windowing and these things are a critical way the content owner is able to earn a return to be ble to then make the next episodes. What it was was a lesson in being transparent to users about how Hulu works because of content coming on to the service and when content comes down.
Could Hulu wind up being a negotiator with the cable operators and others trying to do authentication or TV Everywhere on behalf of your partners? The content owners will always have a direct dialog to their customers. I do think we could help be part of the solution. With regards to that, those are conversations that we'd love to be a part of. Are you working on authentication: we never talk about what we're working on. Our road map is very important to us. I don't mean to suggest that we are; I don't mean to suggest that we are not. Being able to help people online in seamless ways that's rooted in very deep technology, that's what we do and we're certainly going to continue doing that. How we use that background and that DNA to help solve problems, I don't know specifically.
By Staci D. Kramer