Bendable Media

I’ve been thinking about the potential of a Hulu.com IPO and I can’t get past three issues that make it a risky investment.  The issues boil down to a pretty basic question: How will Hulu make real money?

A Hulu IPO may come in the the fall, reports the New York Times, and could value the company at $2 billion. That’s an eye-popping number that makes no sense to my admittedly below-average math skills. The three problems I can’t get past:

1. Ads. Hulu’s basic money-making plan is the same as a lot of Web-based companies: sell ads around free content. Relying on users to click on ads to support content has gotten publishers of all stripes in serious trouble, whether its video or content transferred from print. It just doesn’t work well. Every now and again we will click on ads, and Hulu and other sites  — Pandora Radio comes to mind — provide pre-roll ads we are forced to endure.

Hulu shows a lot of ads, too. The NY Times piece reported that Hulu “served up more than 566 million ads in June, according to comScore, the highest among online video properties and more than double what comScore measured for YouTube.”

I have no idea how many ads commercial TV serves up, but if I must watch so many ads that makes Hulu like commercial TV. So why don’t I just use a DVR to record the TV programs I like from a television and then skip the ads?

2. Subscriptions. The real money maker for Hulu is supposed to be Hulu Plus, a subscription service that costs $9.99 a month. That service is in the trial phase right now. Hulu Plus is intended to offer additional content,  and one that you would presume offers an ad-free viewing experience. Um, no. There will still be ads — but more content! Also, according to its FAQ page, Hulu Plus will put the service on other devices.

Hulu's a fine product for catching up with Jim Rockford

“The Hulu Plus subscription services is available on PCs as well as select mobile phones, televisions (through gaming consoles and other boxes connected to the TV, or directly through Internet-connected TVs), Blu-ray players, and tablets. The free Hulu Plus applications from each partner can be downloaded from their respective app stores. For the latest device support information, please refer to www.hulu.com/plus.”

The real play here is connected devices, like all those Blu-ray players that offer Netflix. It may work, but that leads to issue No. 3:

3.You still need the Web. To get Hulu or Hulu Plus, you need an Internet connection. And if you have an Internet connection, odds are you’re getting it from a service provider that also offers a TV service.  How many people are going to cut the TV cord, still pay for the Internet and rely on Hulu for basic TV offerings? Yes, there are some, and those people also use Netflix, redbox and even other streaming services like ESPN3 for content. They will pay for select content, but will they pay $10 a month to watch a deeper collection of network TV?

I like Hulu and I think it is great for certain applications, such as “catch-up TV.” That means when you miss an episode of your favorite show, you can watch it on Hulu. It’s also great if you’re stuck in the airport waiting for a flight. Personally, I like Hulu for checking out old favorites, like the White Shadow and the Rockford Files.

The NY Times piece concludes with this: “Analysts have questioned how many users were willing to pay for Hulu alongside their cable or satellite subscriptions, and its ability to square away all concerns from potential business partners about its business model.”

My conclusion: I don’t see a blockbuster deal. Am I missing something?

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