Watch CBSN Live

Hulu Turns a Profit, Sort Of. Just Don't Look at Its Costs

Yesterday, we got as detailed a picture as has yet been available about Hulu's finances. The good news is that the site, a joint venture among ABC/Disney, NBC Universal and News Corp. (NWS), grossed $100 million last year, and has actually been profitable for two consecutive quarters. (It nets about 35 percent of revenue).

But if you think that means the online video model for TV content works, I'd say, "Not for long." Unlike the networks and other content providers who provide it with video, Hulu doesn't bear any of the costs of production. So to that extent, the service is getting a free ride.

Business Insider did the best job of any blog I saw yesterday in outlining Hulu's costs. They are as follows: employee costs; technological costs, including bandwidth; and costs relating to sales. But bearing some of the cost of producing "Grey's Anatomy?" No. Now, ask yourself, when has a distributor of TV content ever not had to pay for the content it airs, either by creating a program or acquiring it?

Over time, this will become a bigger and bigger issue, as more people gravitate to Hulu and other online venues to watch what they want, where and when they want it. You could argue that because Hulu is owned by three of the four major broadcast networks, it doesn't have to worry about production, because somewhere up in the corporate hierarchies, someone's paying for it.

But that's really bunk. While it's better for broadcast networks to have stakes in online video sites than not, none of them really want to see their TV revenue go down because viewers are gravitating to the less monetizable Internet. (Hulu is upping the amount of commercials it airs, but it's still a small fraction of what you see on broadcast TV.) Among other worries, it creates a situation where production costs are underwritten by a smaller revenue pie, while Hulu gets a freebie.

This is probably one reason why CEO Jason Kilar is being as open as he's ever been about the possibility of Hulu starting to charge for some programs, a model which some of its owners, particularly News, have vocally favored. Kilar told The New York Times yesterday: "We're certainly open to subscriptions as a complement to an ad-supported model." There's speculation the site will test subscriptions with an iPad app that is said to be in the works. (Since the regular Hulu site runs on Flash, it won't be usable on iPad.)

So, while it's better that Hulu turn a profit than not, the fact it's currently making money hides one big cost the site just doesn't have.

Previous coverage of Hulu at BNET Media:

View CBS News In