Google's Acquisition Could Turn YouTube into a Hulu Killer
Video site Hulu has been going great guns, actually making a profit in the last six months. Google (GOOG) has noticed and decided to up its YouTube ante. Today Google announced that it would acquire Episodic an online platform for delivering video and making money from it. The result? My guess is a do-it-yourself system for video creators and content owners -- which includes major studios -- to make money off YouTube, the most popular destination for online video.
Hulu is big. If it weren't, the company wouldn't have pulled in $100 million in revenue last year, after giving the studios who own the content their cut. However, not all of Hulu's business partners are happy. Viacom (VIA) pulled The Daily Show and The Colbert Report from the site after failing to come to a revenue sharing agreement that it liked. Translation: Viacom wanted more money and Hulu wouldn't accommodate. As Hulu CEO Jason Kilar said to the New York Times:
Mr. Kilar points to his company's new profitability as evidence of the success of Hulu's business model -- collecting various types of video in one place and making it free, supported by ads. Revenue topped $100 million in 2009 and could reach that number this year by early summer, he said. "Aggregation works for consumers," he said. "It makes it easier to find and discover and enjoy premium content, and it works for advertisers, because with that aggregation you get greater reach."As I pointed out earlier today, the one party he didn't mention as a winner from aggregation was the video provider. Aggregation often thrives by giving people content at a price below the cost of producing the content, then letting the content owner have only part of the revenue.
So you can safely figure that the video owners want a way to make more money, particularly if video eventually moves in mass from traditional cable and broadcast to online. The content companies will be open to other partners, and YouTube is far bigger than Hulu, potentially offering a much larger opportunity. Look at this chart from Compete.com comparing U.S. traffic.
I don't have complete faith in Compete's numbers any more than I do from any of the other services that use panels to estimate popularity. But, it's the data available, and it shows an 11.5x differential between Hulu's traffic and YouTube's. For another comparison, here's a graph from Alexa.com:
YouTube has traffic that Hulu only dreams of. Furthermore, YouTube has grown over 6.34 percent over the last three months, compared to Hulu's 0.9 percent. Seriously, if you wanted to catch an audience and make money, where would you go?
The problem with YouTube has been its positioning as a place for just anyone to upload a video. The site's tools aren't for video professionals. That's why this acquisition is smart. Episodic's technology aims at the professional broadcasting sweet spot. For example, its platform has a way to swap out the advertising in live streaming broadcasts. Instead of doing a simulcast to the web and letting the same ads run (often as freebies) the broadcaster can insert a different ad to bring in additional revenue. Episodic covers live and on-demand video, monetization, analytics, content syndication, and delivery to mobile devices. This gives Google a chance to offer bigger audiences, more tools for making money, and probably a bigger chunk of the revenue stream. Sounds to me like an upcoming challenge to Hulu.