Although Hulu has seen great acceptance, popularity and even ad rates—commanding as much as 10% of the online video ad market—it still may not be enough for its creators to call it a success. Hulu may be under more ad pressure than almost any other video site (yes, even YouTube), as Ad Age reports:
Hulu is the No. 2 video site on sheer volume of video views behind YouTube, yet no one is yet making much money from its model: not its network backers, other content partners and least of all Hulu itself, which has a hard time paying for its bandwidth bills.
Its network backers are increasingly calling for the service to go to a premium, subscription-based model. “If you look at the business,” said one network exec, “it’s just not economically feasible to give away programming at low rates.” But advertisers want to use the popular content site to test nonskippable ads and other new formats—something subscribers would hardly appreciate.
Hulu, however, isn’t saying much about its finances. Ad Age does the math:
Hulu won’t comment on its economics, but if you consider that it’s selling video ads and companion banners together in the $40 CPM range, and it appears to be about 50% sold out, when 70% is paid back to networks, Hulu is netting pennies per viewer per hour, about what it costs to deliver video of that quality.
One caveat, however, is that a significant amount of Hulu inventory is sold by the networks, which can buy back inventory to sell to advertisers. Hulu gets 30% of that CPM without any of the costs. Also, Hulu has ad deals with many TV networks on different terms.
Due to new deals, even network makes up to 50% of its revenue off subscriptions—so even on TV, ad-supported TV just isn’t cutting it anymore. Will Hulu cave to its cable content providers and build a pay wall—and if so, will the site be able to survive on that revenue?