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Hulu: IPTV Like Advertisers Want It

Hulu, the much-anticipated video-streaming service from News Corp. and NBC, opened in private beta today. By focusing on network content and eschewing user-generated clips, the service could have an edge in attracting advertisers.

The programming roster ranges from vintage classics like "Kojak" to hot new series including "Friday Night Lights" and "Damages," as well as clips and a few feature films.

In addition to Hulu.com, all content can be viewed via distribution partner Web sites -- AOL, Comcast's Fancast.com, MSN, MySpace and Yahoo -- but not Google's YouTube. According to the New York Times, for each show streamed online, Hulu splits the ad revenue with the content creator and distribution partners.

Dan Fawcett, president of Fox Digital Media, said Hulu.com is the cornerstone of Fox's digital strategy. "We think our content will be available broadly, and hopefully monetized in a fashion that makes money for us and makes it a good experience for viewers."

When they announced the joint venture in May, execs said the site would allow uploading of video files and include user-generated content. In fact, News Corp. President and CEO Peter Chernin and NBC Universal President and CEO Jeff Zucker said they'd invited Google's YouTube to participate.

Since that time, however, the business model has evolved to clearly differentiate Hulu from YouTube, which has been criticized and sued for hosting copyright-infringing video. Hulu will show only fresh, premium broadcast TV content: no cats barfing, no lip synching, no pirated clips.

While uploading is not allowed, Hulu allows for easy viral distribution of network content -- and advertising. Tools let bloggers and Web writers embed clips or entire programs; they can also edit their own clips, allowing them to snip just the most appropriate bit of content for their sites. The embeds will be shown on a Hulu player along with ads.

That strategy may make it a better option for both professional content creators and advertisers.

"We're relatively comfortable. Clips are being transmitted as part of the embeddable feature of the Hulu player, so it continues to be in the safe environment," Fawcett said. He added that Hulu has technology in place to automatically vet third-party sites that embed the video.

"YouTube is a great format, and you have a lot of traffic going to that site, but if you look at the analytics, a lot of people on the site aren't necessarily going to buy any products," said Rick Sizemore, chief strategy and development officer for MultiMedia Intelligence, a research firm focused on IPTV.

While online advertising continues to grow -- nearing an estimated $10 billion in the first half of 2007, according to the Interactive Advertising Bureau -- it is taking a bite out of television ad budgets. It's been hard for online video to connect with traditional ad agencies, but Hulu not only looks like TV, its ad format is similar: inserting commercial interruptions into the program.

"Hulu is tailoring their Web site to better accommodate the larger advertisers," according to Sizemore.

Advertisers at launch include Esurance, General Motors, Intel, Nissan and Toyota, all marketers with large presences in broadcast media.

In fact, advertisers -- and their agencies -- can repurpose their existing TV spots for Hulu. Not only is this a cost saving, but it allows traditional agencies to keep control of the creative and the budget, rather than having to cooperate with interactive agencies on the Internet portion of campaigns.

Said Forrester analyst James McQuivey, "The biggest advertising industry in the country is television, and they are very eager to protect their way of life. When you have TV-style advertising on the Internet, suddenly these people on Madison Avenue are Internet enthusiasts. They are going to accelerate the move of budgets from TV to the Internet because they are so whole-heartedly jumping in."

In addition to 15- and 30-second spots in full-length shows, Hulu will run overlay ads on shorter clips. These clickable overlays appear in the lower part of the viewing window. There also may be small banner-type ads in a corner of the screen, correlating with the show's major sponsors.

The company will have its own ad sales force, a Hulu spokeswoman said, while content owners have the option of selling their own advertising. To date, there are no plans to distribute third-party, pay-per-click ads, such as Google AdSense ads, but she didn't rule out that possibility.

In October, Google began offering ad-supported embedded video units to participants in its AdSense advertising program, which distributes contextual ads to blogs and Web sites.

Hulu also offers paid downloads and DVD sales directly from the site. But McQuivey thinks this will be a small chunk of business.

In a May research report, he wrote, "Current downloaders are media addicts who will spend aggressively in 2007, driving revenues up to $279 million from just $98 million last year. The paid download market, however, is ultimately a dead end. To attract mainstream viewers, media strategy executives must develop new business models and delivery mechanisms to make video downloading ad-supported and geek free."

Hulu could be that business model.

With the burgeoning of online video distribution, sales efforts are being duplicated, McQuivey said. That's lead to attempts to create an online marketplace for media, such as the projects by Google and eBay. While buying all kinds of media from single online sources would be efficient, he said, "As long as it doesn't have to happen, the networks won't let it happen."

But that doesn't mean they don't know the jig is up.

"They pretend everything is hunky dory on the TV model," McQuivey said, "but on the side, they're building these efforts like Hulu to make sure that if TV doesn't work out, they have another option."