Five Reasons a Hulu IPO Risks Cancellation
Maybe I've got a bad attitude regarding Internet IPOs -- having lived through the Internet frenzy a decade ago-- but my first reaction to seeing that Hulu was planning on going public as soon as this fall was to take to the keyboard and tell you why it's not as solid a bet as it might seem.
The overarching reason is that -- as it was with those IPOs that went bad a long, long time ago -- Hulu's business model is still a work in progress, and, as such, it's full of question marks. Yes, this is true even though Hulu is backed by Disney (DIS), News Corp. (NWS) and NBC Universal, and that it served 783 million video ads in July, per comScore, many, many more even than YouTube, which is far and away the most popular video site on the Web.
But let's get specific -- here are five reasons to be wary of a Hulu IPO:
- Hulu runs so many fewer commercials per TV episode than network that it creates problems as consumers shift to online forms of viewing. To make the same money it does off-line, I calculated earlier this year that an episode of House on Hulu might have to draw almost 120 million viewers. That creates big problems for TV, no matter what platform people are viewing it on; broadcast TV will have fewer viewers to monetize, and Hulu won't be able to pick up the slack.
- Even if Hulu ups the number of ads it sells, doing so is harder than it looks. Media buyers are slow to integrate new platforms into what they buy. While Hulu has come a long way in terms of getting advertisers to sign up, there's still plenty of debate about issues that, to an outsider, wouldn't seem debatable at all -- like whether seeing a 30-second commercial online has the same value as seeing a commercial on TV.
- Hulu has plans for a $9.99 per month subscription service, Hulu Plus, but there's no predicting how it will fare. The service promises season passes to view popular series, and to be available on the iPad, among other perks, but, so far, of course, consumers have been wary to pay for online content. That means Hulu Plus can only be viewed as an experiment, nothing more -- not something that will help Hulu turn a profit.
- Hulu has more competition than it looks like. First, there's the DVR, which brings people the Hulu experience on their TVs if they can just manage to push a few buttons that are part of a service many of them are already paying for. Then, of course, there's NetFlix, and the rumored new, improved Apple TV. Hulu may be the most popular online purveyor of professional online content, but that's looking at its competition in far too narrow a frame.
- Speaking of competition, Hulu is only the tenth most popular video site. According to July numbers from comScore, it had 28.4 million unique viewers, compared with 143.2 million for Google sites (most of that YouTube). While Hulu is second behind Google in time spent per user (158 minutes to Google's 283 minutes), and no. 1 in ads viewed overall, its small traffic means it doesn't buy advertisers much reach. Hulu reached only 9.4 percent of the U.S. population in July, ranking sixth behind Google and four video ad networks which distribute video ads across groupings of sites. As other players become more sophisticated in their ad models, Hulu's relatively low traffic will become an issue.
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