Hulu THIS, Baby

Lately it’s become de rigueur for news outlets documenting hip tech trends to run articles on cutting the TV umbilical cord.

Always told in the first person, these accounts often adopt the tone of some turn-of-the-century Antarctic explorer venturing off into a frigid, hostile wilderness: Unable to download the client player to properly handle such daunting tasks as frame rate and web streaming, I nonetheless decided to push on.

Though laughable to younger, more tech-savvy viewers, such tales do illustrate a primary task facing Web-based broadband video services trying to reach the mainstream: how do you make it easy to access high-quality content traditionally found on TV? And of course, since these outlets must also make a profit, the other half of this problem is getting users to pay for it, either through subscriptions or advertising.

There is only one service that is solving both halves of this problem, in spectacular fashion: Hulu, the webchild of NBC Universal and News Corp.

The Winning Combination
In a mere six months since its launch last March, Hulu has witnessed a meteoric climb in usage, to rank #6 in overall video streams with 142 million in September, according to Nielsen VideoCensus. It’s done this, in part, with an impressive lineup of compelling content, including most TV shows on both Fox and NBC (The Simpsons, The Office, Saturday Night Live), shows on partner networks (The Daily Show with Jon Stewart), older TV programs (Friends, Buffy the Vampire Slayer), and even older movies.

But its smoothly functioning web-based player and ease of content access also get rave reviews from several friends and students I talked to who are big fans. They don’t own a TV, wouldn’t dream of paying an arm and a leg for cable, and hate ads.

Hulu users are responding in ways that indicate a new brand in the minting. Nearly 80% of them give the service high ratings, with a staggering 98% saying they would recommend it, according to a Hulu-commissioned survey by Insight Express.
Other fascinating tidbits: 38% of Hulu users watched a TV show they had never seen on TV, while 20% watched an episode they had missed from a show they normally watch on TV.

But the heart of Hulu’s success that contrasts so greatly with its competition lies on the advertising side. Simply put, they’ve built a better business model.
Their survey shows a whopping 93% of Hulu users say it has the “right amount” of ads in exchange for free video viewing.

Think about that, for a second. Hulu viewers don’t think its ads are too much or too intrusive? Pinch me.

Meanwhile, their own research indicates advertisers are receiving brand awareness boosts on par with television ads, and some major categories have been flocking to Hulu’s banner.

Loser Lineup
No competitor has the magical content and ease-of-use combination Hulu has.
AppleTV, Vudu and others requiring the purchase of a pricey set-top box, as well as a steep pricing plan for individual rentals or purchases, scream money pit. Several also focus too exclusively on movies. (Netflix, though, should survive the coming shakeout).

ABC.com, Joost, Veoh and other streaming services have limited content or annoying advertising or pricing. (ABC.com requires users to click on a program after an ad ends in order to resume streaming).

While some of these outfits are backed by powerful corporate parents, the recession is sure to knock several out. Joost, Veoh and Vudu all experienced layoffs in the past year, while Apple has been mysteriously not advertising AppleTV – quite the contrast to its iPhone marketing.

Google-owned YouTube, the dominant provider of user-generated content (UGC), has yet to make the transition to longer-form TV content, or upgrade to a higher-quality player, though both are on tap. However its distinct users, 82 million in October, far exceed Hulu, in second place with 9 million, according to Nielsen Online.

Hulu Hurdles
Hulu still has its work cut out in several areas.

First and foremost, it risks alienating NBC and Fox TV affiliates. They are not going to stand by idly while Hulu cannibalizes their most coveted youth demographics.
Second, Hulu needs to find a way to make it easy for users to stream its signal to TV sets, a headache which can certainly make a user feel like an Antarctic explorer.

Already, a flood of new technologies are available, or near launch, that will integrate web streaming and other types of video downloads easily viewable on HDTV sets with wireless connectivity.

Finally, Hulu’s success risks the sincerest form of flattery: imitation.
Several new web video services are partnering with deep pockets and creative talent to strike new media gold. ON Networks, backed by AT&T and others, has inked SNL star Amy Poehler and director David Lynch for new shows, while Next New Networks and Revision3 are also generating some buzz.

Still, Hulu’s long-term prospects are excellent. According to research firm eMarketer, by 2013 web video will account for 11%, or $4.6 billion, of the overall $42 billion projected online ad spending.

Those numbers should ensure continued migration of content and viewers to the Web, with serious implications for TV.

Up until recently, I thought digital video recorders would spell doom for traditional TV. But Hulu has changed my mind.

-Wilbr