Hulu, the video-on-demand portal of NBC Universal and News Corporation that launched last month, marks the first wholesale move by any US network into online distribution.
It is also the latest attempt to deliver long-form programming via the internet and precedes the June launch of Kangaroo, the codename for a similar joint venture between UK broadcasters.
It's a particularly bold move for NBC, which pulled its content from US market-leading download site iTunes to concentrate solely on the launch.
When NBC chief executive Jeff Zucker and News Corp president Peter Chernin first announced the plan a year ago, they described it as “the largest video distribution network ever assembled”.
Even before the launch, the start-up was valued at $1bn following a $100m investment by Providence Equity Partners in return for a 10% stake. Yet Hulu is actually a rather conservative offering and not the killer application it might have been had other networks such as CBS and Viacom joined forces, although neither has ruled out a future partnership.
The site streams NBCU and Fox programming, including The Office, Heroes, 24, The Simpsons and Prison Break, as well as movies on a free-to-view, ad-supported basis.
In addition to competing with other well-established online video sites, Hulu will also vie for attention with both partners' existing catch-up TV properties, Fox.com and NBC.com.
“We offer a far greater choice of free primetime programming in one place than anything available elsewhere,” declares Hulu chief executive Jason Kilar, noting that Hulu also aggregates content from both companies' cable networks.
The way forward
Moreover, Comcast, AOL, MSN, News Corp-owned MySpace and Yahoo! will also distribute Hulu videos via their own branded players, and Hulu videos and clips can be embedded in web blogs or shared via email to encourage viral distribution.
According to Kilar, in the month before launch the service attracted more than 5 million viewers and that's without marketing to a ready-made test pool of users.
He adds that about 80% of Hulu's entire video library is viewed every seven days, a figure he thinks will be viewed favourably by producers seeking ways to boost profits from vintage shows.
Before joining Hulu, Kilar spent a decade at Amazon, where he wrote the original business plan for the online retailer's entry into the video and DVD business.
In a keynote speech at NAB to an audience grappling with the change from linear to non-linear distribution, he will call for producers to make Hulu the destination for premium programming.
“Online distribution is the way forward,” he says. “The biggest concern for a producer is maximising revenues. After investing capital in creating wonderful stories, the next stage is to ensure that content finds the right audience when that audience is moving online.
“While broadcasters or producers of certain content may have great brand recognition offline, the next stage is transferring that recognition online. This is where Hulu can help,” he adds.
Although currently restricted to North America, Hulu has international ambitions. The UK would be the next logical market, but launching here would bring it into direct conflict with Kangaroo, not to mention the BBC's, ITV's and C4's own catch-up TV services.
“Hulu's backers are in a more fortuitous position than Kangaroo's because they are not at the mercy of producers,” says Screen Digest senior analyst Arash Amel. “NBC and Fox own all the rights to their content, as well as being able to stream hundreds of new film releases.”
Amel says Kangaroo is trying to operate in a peculiar rights environment in which the consumer has a seven-day window for catch-up on BBC iPlayer or ITV.com (4oD will close on launching the new joint service). They then have another window of possibly only 23 days for viewing on Kangaroo unless a deal is struck with producers to keep it online for longer (after 30 days, rights revert to the producer). He adds, “Conceptually, both services [Hulu and Kangaroo] are the same, but there are more hurdles for Kangaroo to jump.”
Part of the new distribution philosophy comes from the marketing value of “housing” longform TV shows near one another, instead of on unique silos around the web.
“[To date], the primary reasons prompting consumers to go online have been communication, e-commerce and information,” states Gary Cole, head of revenues for ITV.com. “These will continue to be mainstays, but we believe that in 18 to 24 months the primary reason to go online will be entertainment. That explains why a lot of advertisers are looking at online video. It's a social trend that's becoming a genuine market force.”
In contrast with Hulu, Kangaroo's backers had planned to operate it as a download service, differentiating it from existing streaming services iPlayer and ITV.com.
This strategy is now thought to be under review in the light of the unpopularity of downloads when compared with the considerable success of streaming sites. Since the BBC switched iPlayer to a streaming model late last year, usage has increased to 500,000 views a day.
However, Simon Danker, BBC Worldwide director of digital media, argues: “We know there's an appetite for long-form via the iPlayer and we believe there's a nascent market for download to own,” citing the success of paid downloads from iPlayer and BBCW's recent download-to-own deal with iTunes.
“Kangaroo will be a mixed economy model that may take a couple of years to work through,” he says. “Ultimately, it will depend on the speed of download.”
Notably absent from the project is Five, busy relaunching its on-demand service, possibly as part of a new “Hulu-style” multi-broadcaster initiative rumoured to be under consideration by Five-owner RTL, and which could build on Five's relationship with US network CBS.
“Leaving Five out of original plans to launch Kangaroo could be a mistake,” says Amel. “Instead of combining all UK broadcasters under one roof, Kangaroo could face immediate domestic competition. Its biggest challenge, though, could be overcoming the internal conflicts that a new online streamed service will generate alongside broadcasters' own, pretty successful, streaming brands.”