Hulu.com is a fairly simple concept.  In 2007 NBC and FOX created Hulu.com to broadcast television content over the internet.   In April of 2009 Disney’s ABC unit bought into the joint venture with a 27% stake.  The concept is pretty simple – push TV shows over the Internet.  But the reason why these historic competitors would work together and the ramifications it will have on both the television industry and the Internet are profound.  Let’s dig in a bit.

The first thing we have to understand is who the players are and how they make money.  I’ve created this over simplified chart to help illustrate:

Major Players

Cable Companies, Internet Service Providers, and Cell Phone companies make their money by selling subscriptions to consumers to gain access to content.  These companies have saturated the US market — essentially everyone has cable, cell phones, and internet access.  The market is not going to grow.  So the only way they can grow is to add new services to their offering.  But there is only so much the consumer is willing to pay.

Content Producers like Disney and Fox make their money by selling advertising placement on their content.  (This is oversimplified but provides the picture we need to understand what’s going on).  The more content they get in front of the consumer the more money they make.  The bigger the audience the more they can charge for the advertising spots.

Hulu brings that content directly to the consumer through the internet.  Allowing NBC, FOX, and Disney to create a bigger audeince for their content.  But since the Internet providers charge a flat rate for internet they don’t make any more money.  In fact, since the Cable companies are also the Internet providers they are concerned that consumers could cancel their Cable subscriptions and just watch TV over their internet connection — reducing the consumers monthly subscription fee.  AND THAT IS EXACTLY WHAT IS GOING TO HAPPEN AND WHY HULU IS A HUGE PARADIGM SHIFT!

Once you can watch TV over the internet and once your TV is connected to the internet you don’t need cable anymore.  How does this effect the players…

Content Providers love this!  In the short run they are now growing their audience by providing content on the Internet and Cable TV.  Which increases their revenues.  Plus they can launch new shows on the internet to test them before going to big budget main stream distribution.  In the long run they get to add functionality to their content that only the internet brings — like instant product purchase, sampling, coupons, and promotions.

Cable Companies are scared to death.  How do they justify selling two services to consumers when the consumer only needs Internet in the future.

Internet Service Providers need to figure this out.  For the most part they are also the Cable Company.  But more importantly, they need to figure out a model that charges consumers for usage — not just flat rates.  The news is full of stories right now about ISPs capping the amount of data you can download.  There is a future where the more Internet you use the more your bill will be — and TV over the internet uses a lot of bandwidth.

So, why is Hulu important?  According to Neilson:

“Hulu ranks #2 (online video outlet behind YouTube) as it continues on a steep growth trajectory, increasing 490% in total streams year-over-year (YoY), from 63.2 million in April 2008 to 373.3 million in April 2009,” (Link here to full article).

People are ready for TV content over the internet.  The Content Creators will be the winners.  The Content distributors need to figure this new model out.  Marketers will have innovative new ways to communication their message to consumers.  And consumers will end up paying more — but will be getting a lot more content and functionality for their money.

This campaign from Sprite is a great example of pulling together a couple of tactics to make a very compelling and engaging brand experience.  I find that too often agencies don’t stretch themselves to expand a core idea beyond the initial focus.  This example, developed by the FullSIX Group, goes above and beyond to integrate celebrity, viral video, user generated content, and SocNet leveraging the following:

Celebrity: The campaign’s core revolves around the up and coming English artist Katie Vogel as she tries to build a successful music career.  You get to follow her through her journey by watching YouTube videos and her Facebook updates.

YouTube: Katie’s music videos are posted for fans to rate and review.  The YouTube Channel links directly to Facebook!  Remember that at this time Facebook is not owned by Google — this is the first I’ve seen a YouTube channel integrating with Facebook.

Facebook: You can be-friend Katie on Facebook and follow her on her journey to be a star!  You can post to your Facebook feeds directly from YouTube!

For more details check out this article on Clickz (article here).

My Two Cents:

• This is the first time we’ve seen YouTube integrated with Facebook.  Keep an eye on this — it may open up some really engaging opportunities.
• The first video includes Katie breaking up with her boyfriend — it’s a bit too convenient to be true.  I’d be careful to mix reality with fictional elements.  You will quickly alienate your fan base if they don’t trust you.
• Katie doesn’t post enough.  She needs to be very active to keep the fan base engaged.  It appears she is only posting updates every couple of days.  I’d highly suggest the she updates every couple hours.

Not that anyone has asked me, but this morning I was thinking about what it would take to save YouTube.  As we know,  YouTube is bleeding money and the advertising model is not going to cover the enormous bandwidth costs.  So to deviate from my normal posts about emerging marketing opportunities and examples I’ll offer my thoughts:

1. Micro-Payments

• I’m a huge fan of the Micro-Payment model and am keeping a close eye on how it moves from success in Asia to the US market.  I see a place for Micro-payments on Youtube.  For instance, let visitors watch 2 hours a month for free but then charge 10 credits per any video over 2 hours.  Credits can be purchased for $1 per 100 credits (or whatever the math needs to be to make a profit).  Give away 2 hours free — or whatever the number needs to be?  This will keep YouTube as the number one video site since most users are under 2 hours while monetizing the hardcore users.  Why credits?  Because advertisers now can give credits away for free to make their ads more relevant on YouTube — e.g. “Watch My Ad and Get 100 YouTube Credits” (see math below)

1. Premium Semi-Pro Content

• YouTube should foster a community of semi-pro content producers then charge for access to that content.  They should invest in semi-pro episodic cartoons and live action shows, use the Google properties to market those shows, give the first episodes away for free, then charge $0.99 per episode after that.  They should also get a percentage of the future revenue generated on the IP so if the show goes pro they get a piece of the action.  The next Simpsons or The Office should come from YouTube rather than ripping off UK ideas.

1. YouTube Cable Channel

• Work a deal with Viacom to create a YouTube Cable channel that is a 24 hour cable channel with non-stop YouTube clips.  Basically run the clips that show up on : www.viralvideochart.com then sell ads on top of it.  Since these are actual TV ads they will garner TV rates — not the internet rates YouTube now enjoys.  This creates a model where YouTube.com is the feeder to YouTube TV that monetizes the content.  As for the copyright issues — I don’t have a solution for that one.

Those are three ways to monetize YouTube which I am sure Google has already worked through  and figured out why they won’t work.  But I thought I would share my thinking on the issue — it would be a shame if we lose YouTube.

ADDED:  I was thinking I bit more about this an wanted to see how the math would work out.  In March 2009 YouTube had 89MM Uniques and the average time people watch online videos is 190 minutes per month (source: Neilson – that’s for all video not just YouTube but we’ll use that number since YouTube is the majority).  If we give away 120 minutes for free that would leave these 89MM viewers, on average, with 30 minutes to pay for.  If YouTube charges $0.01 per minutes we would have $0.01 x 30 minutes X 89MM = $26.7MM per month.  They are estimated to lose ~$450MM in 2009.  This would give them $320MM of that.  If the consumer behavior stays the same when they have to pay — which we know won’t happen.  But its an option.

Here’s a great post from ReadWriteWeb (link here).  The jist is that hip agencies are creating viral content that appears to be fan produced.  But turns out it is produced as a marketing tool for the advertiser.

BMW's The Ramp

I don’t fully agree with the RWW post.  I can see that in some cases agencies can cross the line.  But I was a huge fan of The Ramp documentary supporting the introduction of a new BMW to the US market.  This was obviously a Fake Viral Video — so it might not be considered truly a fake.  But if I’m being sold a BMW I don’t mind also being entertained.

Viral Video is pretty hot now. There are some very interesting things going on with video over the internet and I’m nor on a limb here to say that the TV and Internet will completely merge within the next three to five years. The opportunity here is to create compelling video content that garners an audience AND drives a business goal. That last bit is lost on a lot of campaigns I’ve seen.

Let’s start with the facts:

• If you’re online you’re watching videos
• If your watching videos your watching them on YouTube (there are some compelling other online video networks like Hulu and Revolution3 that have an audience, but the masses are on YouTube)

To check out what is hot right now check out:

http://www.viralvideochart.com/

We should break up online video into two buckets. Video has become a very efficient tool to communicate product information. You see it everywhere from Amazon to Walmart. Most manufactures should ,if they don’t already, have videos on their site. I’ve been producing product demo and usage videos for the last couple years and they have been extremely valuable in communicating product features and benefits. The best aspect of video is how easy it is to distribute the videos through partner sites, video sites like YouTube, blogs, and other channels. I’d say video content on the web is the future of the web.

The second bucket is what is meant by “Viral Video”. It is a video specifically produced to generate a grass roots viral pass along frenzy. Think of the last video your buddy sent to you with “You got to see this”. Thats viral video. It has its place and can be a valuable communication tool. New product introduction, brand personality positioning, and awareness are some objectives that can be achieved with viral video.

A couple thoughts:

• The more outrageous and funny the video is the more viral it will be. So this is not for everyone, every product, or every legal department.
• Videos don’t become viral unless people see it. I call this “critical mass”. To make sure your video becomes viral you’ll need to invest some seed money to get to critical mass — a point where grass roots pass along takes over. So make sure you budget for the video production AND the ad buy.
• This is completely hit or miss and they don’t last long. A successful viral video campaign will get between 100,000 and 1,000,000 views — but those views will all be seen within a couple days. Something better is always just around the corner to become the next hot video.
• Be mindful of the target audience. Do you sell product to people that pass along outrageously funny videos to each other? If not, think about another tactic.

Like I said before, Viral Video has it’s place. But it has to be the right objective, with the right brand, and there is a lot of luck to make it successful.