The Hulu Vision for the Future of Television
Jason Kilar, the chief executive officer of online video provider Hulu, is a “true believer.” The television industry is in flux at the moment when it comes to content being available via the Internet, with the networks feeling that they are losing advertising dollars in the process, megamedia giants like Apple, Google and Netflix offering products designed to make a cable subscription service unnecessary and cable giant Comcast completing its merger with NBC Universal. In addition, the number of cable subscribers is dropping each quarter and while some analysts insist it is due to the ease of online content access, others argue that it is merely the inevitable ramifications of a poor economy and that the trend is merely temporary.
Despite all of this uncertainty, Jason Kilar still considers the World Wide Web to be the future of television with Hulu leading the way. “A number of you that are reading this might think we’d be crazy to think that our small team can actually re-invent television and compete effectively against a landscape of distribution giants like cable companies, satellite companies, and huge online companies,” he wrote on February 2, 2011, in a Hulu blog page entry. “We are crazy. All entrepreneurs need to be. If it was easy, everyone would be doing it and there would be no naysayers. We are nothing if not a team that believes in the value of convictions, thoughtful stubbornness, and the relentless pursuit of better ways.”
Those “better ways” have ruffled a rather large number of feathers through the years. Hulu was originally established in 2007 as a way to offset the potential damage to the television industry that illegal online video, as well as YouTube, posed. The music industry was decimated in the early part of the Twenty First Century by file swapping and television executives were determined to not experience the same upheaval. By joining forces in Hulu, FOX, NBC and later ABC believed that they could control the consumption of their content in a legal and systematic fashion. Despite being proactive in regards to the changing winds of the Internet, however, the network partners instead created an environment that allowed viewers to watch their favorite shows at a time of their choosing and with the added benefit of fewer commercials. It wasn’t long before questions arose about whether the approach was cutting into advertising dollars generated from the actual television broadcast—which is in effect the lifeblood of the industry.
As The Wall Street Journal points out, the arguments against making content available online in general and Hulu in particular fell on deaf ears as long as supporters Peter Chernin of FOX and Jeffrey Zucker at NBC were the final decision makers. Chernin eventually left FOX, however, and Zucker’s influence quickly diminished when it was announced that Comcast would soon take over NBC Universal. Although Jason Kilar believed that the best way to build Hulu was growing its audience base with free content, and thus increasing advertising revenue in the process, he soon succumbed to the pressure of adding a subscription service for a large percentage of Hulu’s programming. That service, called Hulu Plus, launched in 2010.
Even with such changes in Hulu’s business model, the online video provider’s opponents remained skeptical about whether Hulu was the answer—or, more importantly, was even in the best interests of the industry—and eventually reached conflicting agreements with many of Hulu’s rivals. ABC, for instance, developed its own app for Apple’s iPad for viewing of its television content. NBC, meanwhile, signed away new episodes of Saturday Night Live to Netflix. With such conflicting viewpoints surrounding the future of online television distribution, Kilar wrote his blog “manifesto” to both offer his own vision as well as reiterate his confidence that Hulu is poised to be at the forefront of that future.
Jason Kilar’s beliefs, however, do not stem from false convictions. The Hulu CEO has no illusions, for instance, that the “distribution giants” that currently control the system are formidable foes, it’s just that he considers there to be other factors in the mix—and three “potent forces” in particular—that will inevitably determine the future of television: consumers, advertisers and content providers.
According to Kilar, studies consistently demonstrate that television viewers are interested in having fewer commercials and want the ability to watch their favorite shows at a time that is convenient to them as opposed to one dictated by network programmers. Hulu obviously has the advantage over traditional network broadcasts in this regard since it already offers a smaller number of commercials with less frequency and allow viewers to watch episodes at any time of the day or night.
More importantly, Kilar believes that fans on the Internet are now the deciding factor when it comes to the success or failure of a television series. “Consumers are demonstrating that they are the greatest marketing force a good television show or movie could ever have, given the powerful social media tools at consumers’ disposal,” he writes. “Consumers now also have the power to immediately tank a bad series, given how fast and broad consumer sentiment is disseminated. This is nothing short of a game-changer for content creators, owners, and distributors.”
With such influence, the demands of these consumers in regards to “how” they want to watch television should thus be taken seriously and not simply dismissed because it does not conform to the traditional business model for television.
As for the advertisers who spend billions of dollars a year to keep the networks profitable, research shows that they are interested in having a more focused and streamlined approach as well. “Advertisers are increasingly expecting to present their advertising messages to just their desired audience and not to anyone else,” Jason Kilar asserts. “For over 60 years, video advertising could only be bought via a TV show’s projected audience, which served as a blunt proxy for a certain target audience. The result has been many wasted impressions and an often irrelevant experience for consumers. In the near future, advertisers will demand the ability to target their messages to people rather than targeting their messages to TV shows as proxies for people.”
According to Kilar, Hulu has been extremely proactive in gauging exactly “who” is watching a particular television program and “how” the commercials spliced into episodes are directly relatable to that audience, thus making the online video service better equipped to pinpoint a specific advertiser with their desired target. As for content providers—the creators of television shows and the producers that fund the endeavors—they want a “fair return” on the money and effort involved in creating that content. Yet again, Kilar believes that Hulu is the answer they are looking for.
Although The Wall Street Journal states that Jason Kilar was initially reluctant to launch a subscription element to Hulu, the CEO’s online manifesto clearly indicates that he is now a firm believer in its necessity. While he maintains that Hulu will always make a limited amount of content available for free, he also believes that it is the combination of free and subscription that offers the greatest potential for content providers.
“If studios and networks license their content to distributors with per-user per-month economics as the model (as opposed to a fixed fee model), then they will be able to extract a higher portion of the total economics their content will generate,” Kilar writes. “We state this given our belief that the majority of the US population (and a material percent of the globe) will be subscribers to some flavor of digital premium content service going forward. Given the above future, we see strong upside for content owners that are laser-focused on the per-user per-month economics. A greater percentage of the pie should flow to content owners and creators in the future.”
Jason Kilar has an emphatic vision for the future of television, as well as Hulu, and is not above sharing his views with the world at large. While many of his arguments are no doubt correct—what television fan, after all, doesn’t want to sit through fewer commercials and watch an episode of their favorite show at their own convenience?—others are based on assumptions that have not necessarily been proven. The production of a television show requires big bucks, upwards of two million dollars an episode, and the Internet has yet to demonstrate that it can cover such costs via either advertising or subscription to the degree that traditional television broadcasting does with its current business model. Still, give Kilar credit for being a man of conviction.
Unfortunately that conviction is not shared by the network executives who control the distribution of their content. The Financial Times, for instance, reported the day after Kilar’s blog post that Disney, which owns ABC, issued a statement saying that the Hulu CEO’s viewpoints were “personal and clearly not shared by anyone at Walt Disney.” Other industry insiders were even more blunt in their assessment. According to FT.com, “another person close to the situation” asserted that “these are clearly the musings of an elitist who is obviously disconnected from how the majority of America watches television.” Jason Kilar no doubt expected the potential uproar when he wrote, “History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most.”
Which raises an interesting question: is it the believer in a different future for television that’s the “elitist” or is it the insider who clings to the current business model? Ultimately it will be the consumers, advertiser and content providers who decide the answer, as Kilar himself suggests. While the verdict is still out on whether they will side with Hulu, there is no doubt that a very different television landscape is on the horizon—and that should be reason enough to give Jason Kilar’s comments the proper consideration they deserve.
Anthony Letizia (February 14, 2011)
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