Online video ad network LiveRail (our profile) has just released a 'State Of The Industry Report' for Q3 2008. It reports that video ad spending currently only represents 2.36% of all online advertising, but that it is expected to grow over 55% next year. Right now only 20.95% of internet video streams are being monetized. LiveRail also noted that NBC's online Olympics coverage failed to monetize well, however Hulu.com is doing good business.
Indeed LiveRail states that Hulu will be a more successful business than YouTube, because of its ability to sell advertising across 100% of its inventory - compared to just 3% for YouTube.
In July we reported that Hulu is set to earn $90m in its first year. After paying off their content partners, Hulu's net revenue will probably be between $12.5 million and $25 million. This seems like a success, surely, but we had some doubts. "As Hulu grows in popularity," we wrote, "their bandwidth, marketing costs, and overhead will increase as well, and it will remain a struggle for the company to earn revenue."
YouTube launched Adsense for videos back in August. YouTube's estimated worldwide revenue for 2008 is $200 million, with approximately half of that being US based. So according to LiveRail, "given that Hulu caters almost exclusively to a US audience, both YouTube and Hulu could see roughly the same revenues in the U.S. this year."
example of YouTube ad
LiveRail claims that "despite still being substantially smaller than YouTube, with 88 million videos served compared to YouTube's 4.2 billion", Hulu is more successful because it has the ability to sell out its inventory.
LiveRail suggests that this is due to Hulu's less 'risky' content. Hulu's "policy of only serving high-quality original content, and securing licensing deals from content owners, rather than allowing users to upload the content themselves [...] has removed the risk of copyright infringing content, or content of questionable quality; risk factors that most advertisers are anxious to avoid being associated with."
The one caveat appears to be Hulu's ability to sell out all its ads. We're also not entirely convinced about the argument that YouTube's UGC (user generated content) is inherently less able to monetize. As Google proved with Adsense for webpages, UGC content is able to be monetized on bulk despite its 'risks'. The same could yet prove true for user generated video content.
There is more interesting data in the report, which ReadWriteWeb readers can download here (pdf) thanks to LiveRail.
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Look for YouTube to adopt Hulu's streamlined advert strategy ASAP. YouTube should also amend their boxy styled videos to a more elegant widescreen viewer as well. The Hulu ads aren't intrusive at all, especially when I know when they are going to be shown (marked in viewer timeline) and for how long (displayed countdown timer).
Posted by: Kevin | September 3, 2008 7:30 PM
To claim that Hulu is more successful than YouTube is just simply short-sighted. Advertisers will pay to get in front of users (visits, frequency, etc.) and the simple PxQ will ultimately determine who is more successful. Google just hasn't turned that ***profit*** stream on.
Posted by: agent mulder lives | September 3, 2008 8:27 PM
agent mulder lives, you may be right -- but the report argues that advertisers don't want most of YouTube's audience. They're suggesting that they *won't* pay to advertise against someone's singing cat, but will pay to advertise against quality content.
Having said that, I agree that YouTube has the muscle and can flex it anytime they want.
Posted by: Richard
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September 3, 2008 8:36 PM
I'm sick and tired of messages like: You are watching this outside the USA. We can't stream to you.
The internet doesn't know countries, just like Stephen Colbert doesn't see race.
So unless Hulu can do something about this "geo-censorship". I can't see how they'll make more money than YouTube.
Posted by: Dennis Bjørn Petersen
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September 3, 2008 10:28 PM
Personally, I dislike Hulu's ad system. I don't mind, 30 second ads. I hate that it's the same 30 second ad shown 2 or 4 times. I also hate that you get the ads eve if you are fast forwarding. Though admittedly they handle it better than the WB site; but still if I'm going from 5 minutes in to 35 minutes in, I shouldn't be forced to see the ad. My guess is a better ad proximity watch. If you fast forward within 3min of an ad you see it.
With YouTube, I actually like the over the video, at the bottom ads that display. They can be closed if annoying; but otherwise, presents the ad as if it was a news ticker or get information on digital cable. Better yet, it trusts that users can process multiple sources of information at once. So no need to STOP and pay exclusive attention for 30 seconds; which irritatingly isn't enough time for a bathroom break.
In all honesty, the first time the ad is fine, by ad 3, I'm actively looking for something to consume 30 sec of time. Looking at Twitter or pre-queried Twitter: Search seems to work best so far.
Posted by: allgood2 | September 4, 2008 4:25 AM
Enjoy Hulu, especially some of the old shows they have out there. For a free service it is great. Generally surf during ads no biggie.
Dennis, I feel your pain with regards to country blocks. I'm in the US so Hulu no prob, but can't watch shows from UK, Australia or Canada. Have had some luck with German channels. The Internet is not one world yet.
Posted by: Boonyboy | September 4, 2008 7:28 AM
Working at an ad agency (although we haven't worked with Hulu yet) I can agree 100% with the claim that a lot of advertisers (our clients, not as much us) are wary of advertising on YouTube.
Even though advertisers don't balk nearly as much when it comes to advertising on non-video forms of user generated content, there's just something about video that scares a surprising amount of clients off. This is why I've always thought YouTube was going to have monetization problems. For the Cokes, Nikes and Paramounts of the world it's a non-issue. But for the vast majority of advertisers it's much more of a concern.
I would like to see Hulu (and similar studio-backed ventures) open up their doors a little more though. Right now, it's still open to only a select group of advertisers (which is why you see the same handful of ads over and over.) If they can scale their platform out to where they can start to doing tighter targeting like geo-targeting, day-parting, etc you could really see the mix of ads and relevance of those ads improve.
Posted by: RS | September 4, 2008 7:55 AM
What's Hulu? Never heard of it.
Posted by: Anonymous | September 4, 2008 9:58 AM
@ Dennis Bjorn
Maybe you should give them time to fine-tune their ad servers and ad solutions before developing an international ad sales team. I think Hulu can't wait to become an international video portal.
Posted by: xavier vespa
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September 4, 2008 1:14 PM
Hulu will be more successful than Youtube in monetizing its inventory. The public are more accepting of ads around "premium" content following the TV model. It is a much harder sell to get people to accept corporate advertising around UGC - aside from UGC being made by amateurs not out to make a buck (most of the time), the ads would just be too incongruent
Posted by: Simon | September 6, 2008 6:06 AM
Both sites have their place in the online video space and right now I also believe that Hulu will be more profitable than YouTube in the near-term.
Why? If you measure by the following, Hulu should be doing better:
- profit (not the same as revenue)
- profit per user
- revenue per user
- profit per video
- revenue per video
- profit per pageview
- revenue per pageview
Hulu should easily be winning at all those based on this article, the report and my experience with both sites.
I still love them both and use them to get different bits of content.
Posted by: David Mullings | September 8, 2008 6:54 AM
doesnt the liverail report appear to summarize parts of this Sep 1, 2008 techcrunch post?
http://www.techcrunch.com/2008/09/01/can-hulu-be-a-bigger-business-than-youtube/
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Posted by: xocai | October 2, 2008 1:20 AM
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http://www.woopie.jp/
http://www.woopie.jp/desktop/
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Posted by: Jack | October 2, 2008 3:47 PM