Akamai Leaderboard - 8-25-10

Hulu Plus Should Drop the In-Stream Ads Immediately


Friday, July 2, 2010, 09:35 AM ET
posted by: Will Richmond
I activated my 7-day Hulu Plus trial last evening and spent some time with the new subscription service on my Mac. The overall navigation and video quality was excellent, consistent with the high standards Hulu has set from the beginning on Hulu.com. I particularly liked how Hulu has chosen to display the many episodes of past seasons. They are listed by title in reverse chronological order, with run-time, original airdate, length, and the ability to add to your queue well-displayed. For shows with multiple past seasons Hulu Plus lets you drop-down to see particular seasons as well.

Net, net, though I haven't spent a ton of time with it, my first impressions are generally positive, except for one major, major thing: Hulu Plus programs carry the same full in-stream ad load as programs on Hulu.com. In my "7 Quick Reactions" post earlier this week, I called this out as both a big surprise, and also a key detraction from the service. Now that I've experienced the ads, I can say even more emphatically that Hulu Plus must relinquish the ads.

The biggest problem with the ads is that they are discordant with consumer expectations for a paid subscription service. The right comparables for Hulu Plus should be premium cable channels like HBO, Showtime and Epix, and a DVD/streaming service like Netflix. In the former, you'll routinely see cross-promotions for other programs, but you'll never see a commercial break. In the latter, aside from previews, you never see any ads at all.

It's tempting to say Hulu is more like a basic cable network (e.g. USA, ESPN, MTV) which do have ads. But that would be a faulty comparison, for at least 3 reasons: (1) cable subscribers have experienced a dichotomy between basic (with ads) and premium (no ads) channels from the first days of cable, so their expectations were set early on, (2) many viewers now watch via DVR and improve their experience by skipping the ads anyway (something that can't be done with Hulu Plus and (3) a lot of basic cable is first-run programming, not past episodes like on Hulu Plus; viewers intuitively get that "new is more valuable than old" and so ads on basic cable, as with broadcast, make sense.

In his interview with AllThingsD earlier this week, Hulu CEO Jason Kilar said that Hulu thoroughly researched potential reactions to including ads. He said Hulu asked consumers "If you had a choice between having it be with no ads and at a higher price, (versus) having it with a relatively modest level of advertising but lower priced, which would you prefer?" According to Jason, they dramatically chose, 'in large numbers,' the latter. That finding is unsurprising, but also it doesn't strike me particularly relevant either as consumers will almost always prefer something that costs less. To me, more pertinent questions would be: "Do you think it's appropriate to have ads included in a $10/mo subscription service that mainly offers library broadcast network content?" and "Would you subscribe to such a service at this price and with ads?"

Research aside, from a common sense point of view, I can tell you that if I had been a new paying Hulu Plus subscriber, when I fired up that Ally McBeal finale episode last night and was first greeted with a 35-second Sprint Evo ad (followed by 4 more ad pods of 15 and 30 seconds each and concluding with a pitch to buy the episode), I would have been disappointed.



There's a certain irony in Hulu's decision to include ads in Hulu Plus, because it has always been so focused on the user experience, and included relatively few ads in its free site. I've been a vocal critic of Hulu's "ad-lite" approach, both because it conditions viewers to expect that online delivery means few ads, and also because it undermined the networks' P&Ls as convergence devices start to bring online programs to the big screen (lately I've been encouraged that networks plan to double the ad load in their online programs).

It's also worth noting that advertising is a scale business. If you don't have a lot of viewership and inventory, you'll make very little money. Given that Hulu's 40 million+ monthly viewers of its free programs will swamp the number of Hulu Plus subscribers for as long as the eye can see, incremental viewership and ad revenue from Hulu Plus will be a rounding error in the larger scheme of things. That leaves me thinking that Hulu is foolishly trying to "gild the lily" with ads in Hulu Plus.  

Maybe I'm missing something big, but my feeling is that Hulu should nix the in-stream ads immediately. There's still much uncertainty about whether the fundamental value proposition of Hulu Plus - online access to a library of broadcast network programs for $10/mo - is strong enough itself to gain traction. We'll only know the answer over time. Meanwhile, the last thing Hulu should be doing is throwing up an obvious roadblock to adoption and ongoing satisfaction by including ads.

What do you think? Post a comment now (no sign-in required).

Categories: Advertising, Aggregators

Related Analyses:

Tags:


10 Comments posted


John
Friday, July 2, 2010, 10:17 ET
They shouldn't be surprised to see that the app has been downloaded a lot more than the number of actual subscribers they get. People want this service, they just don't want it in this current form.

Kenneth Lawson
lawsonreport.info
Friday, July 2, 2010, 12:25 ET
Hulu has gotten itself into a hock and a hard place. While they set the stranded for video playback in quality and content, they did it with a limited ads format, while this worked, and worked very well, It set consumer expectations very high. Which is good, but now, they want to start adding in more ads, consumers will not like that. Soon it will become too much like traditional commercial tv. Viewers will be at the least annoyed, and many will leave to find other venues that have the same content with as few or less ads, or even back to the bit torrents.

I suspect that there may also be a huge number that try the paid version and as soon as they find theres ads, drop it, That should be a interesting number.

Netflicks had this beat by a huge factor. As for me, my personal interest is in seeing classic tv, and generally little new content. Netflicks works very well.
Hulu Plus with ads is not a value ad in any sense of the words.
If one see limited ads in the free version, one should see NO ads in the paid version, Thats it. If I pay for content I expect there should be no ads. Thats what I'm i'm paying for the privilege to see content with no ads.

This not even counting the platform advantage that Netflicks has, I can watch Netflicks on anything from my laptop, to a host of boxes from Roku, to Boxee, and through a variety of dvd.blu-ray players, now even a number of net connected tvs directly.
In that respect Hulu is still holding on the the more traditional model of trying to control their content as much as possible. Much like the publishing indusrtsy is still trying to understand that they aren't just publishing books anymore , they're publishing content, Hulu is not just publishing shows, they are pushing content that should be available on a huge number of platforms to get more eyes on their ads, Then, maybe the Hulu Plus would start to make sense.

Hulus Plus, with ads;
No Thank You,
And probably not even with no ads either,,,

Ken Lawson




Terry
Friday, July 2, 2010, 01:37 ET
It's pretty simple really - everyone can accept the need for ads in the free version, BUT there should be NO ads in the paid version - isn't that the point in having a paid version to start with??
Listen up execs - GREEDY, GREEDY, GREEDY doesn't pay in the long run...

Mike Patnode
http://mpsharp.com
Friday, July 2, 2010, 02:32 ET
Rather than make the choice, why doesn't Hulu just offer a premium service without the commercials for $N more, and let the market decide which one is more popular?

John Reister
Friday, July 2, 2010, 03:11 ET
Obviously, the chosen subscription fee is not adequate to make the service sufficiently profitable without ads. If you suggest they get rid of the ads, then you need to weigh that against a e.g. $15 subscription fee. Perhaps there needs to be a range of choices.

Friday, July 2, 2010, 05:27 ET
@Mike and John - I think the range of choices with and without ads is an interesting idea, but going that route increases positioning and messaging complexity. Again, I'd maintain that the ad revenue from this subscription service is going to be relatively small anyway until there's a lot of scale, which Hulu Plus won't likely have for years. That leads me to think they should just price it at whatever level provides an acceptable ad-free ROI and see how the adoption goes. Blending in ads with subscriptions is a no-no for the reasons I outlined above.

Kenneth Lawson
lawsonreport.info
Friday, July 2, 2010, 07:23 ET
Doing a ad free pay model with possible value added extra, is the way to go, set it high enough so it pays for itself, of course the higher they set it the more extras they need to attract viewers. Then let it play itself out and sink or swim,,
Getting into tried pricing get complicated both for them and the consumers. They need to keep it simple for both.

Ken Lawson

Sunday, July 4, 2010, 03:54 ET
Will, it's easy to forget, but Hulu is clearly not like other start-up video services -- they were not proactively launched to target a consumer market opportunity. Their business plan essentially breaks all the marketing rules.

The decision to launch Hulu was a direct result of the U.S. TV network's reactive response to concerns that online video adoption would fragment the once captive mainstream legacy TV viewing audience. It's not a customer-centric model, so you can't assess their actions from that point of view.

From the beginning, the traditional big-media owners of Hulu have challenged the small company's leadership team to do the unthinkable -- implement a strategy that's counter-intuitive to a savvy marketer who is skilled in serving customer needs.

Therefore, while I can only imagine how this scenario played out, I'd guess that when Hulu's CEO gave the TV networks the options for evolving the business model the one they chose was not on his list -- that being, all of the above. "Let's have forced advertising and also charge a subscription fee."

hm
Tuesday, July 6, 2010, 01:51 ET
We would rather pay another five to ten bucks a month to netflix and have them add to their content.

We are going to use nexflix, plus download new shows onto Tivo DVR disks, so we can skip ads as we choose while watching on our lap tops. We will pay for netflix and what it takes to get Tivo recorded, rather than have their ads shoved down our throats.

Hulu clones? Post if known.
Wednesday, July 7, 2010, 03:13 ET
What sites are available other than hulu?
Please post other known sites if possible.

I know hulu has a nice set up, but the new way they force commercials is so annoying. (example: if you watch the commercial of a segment, then go back to review, they force you to watch another commercial for that segment.)

We feel like everyone already contributes some amount of value by letting them use our information and habits, like this new "is this ad relevant" marketing scam. I find myself determining the value of each segment before I let the commercial begin.

We were hoping to avoid these commercials by paying a monthly fee, but we will NOT pay hulu for commercial viewing.



Post a comment


Name *
Email (not shared)*
Website URL
Twitter
Enter Code shown in box below:

Login Using Facebook

Comment *