Why Newfound Concerns Over Hulu's Ad Revenue Are Overblown
This story was written by Rory Maher.
After months of being a media darling, Hulu lately has come in for some criticism, most of it centered on the company's ad sales. The gist of the criticism is that the sales of ads at the Internet TV service aren't keeping pace with its surging traffic over the past few months. BusinessWeek kicked off the coverage, and others also chimed in. What started it all was a report by Screen Digest analyst Arash Amel pointing out that although Hulu grew its traffic by about 50 percent between October 2008 and February 2009, it has not been able to sell ads at the same clip. Amel said Hulu is selling about 60 percent of its ad inventory, with the rest being filled by public-service announcements, which led Amel to cut his estimate for 2009 Hulu revenue to $120 million from $180 million.
But is the 60-percent figure really all that disappointing? I don't think so and here is why:
With traffic growing so quicklya 50-percent spike in five months is quite an achievement it shouldn't be too surprising that ad revenue has lagged somewhat since ad-sales typically sells on current traffic not future traffic.
Many say Hulu is close to being profitable and may be at breakeven, and if this is the case, the company should probably be focused on growth versus squeezing out more profits anyway. A recession is a great time to steal audience share from competitors that are forced to devote most of their resources to cutting costs and finding any incremental revenue they can.
Sixty-percent sell-out for a media company isn't exactly awful anyway, especially when it is from premium advertisers. Most media companies don't sell all their inventory (many traditional ones usually don't sell more than 70 percent) and if online publishers got rid of dirt-cheap network ads they probably would struggle to sell 50 percent of their ads, never mind 60 percent.
Oh yeah, and did we mention that the economy fell off a cliff after October?
By Rory Maher