Aud measurement also a question for online viewing

Biz hunts for internet dream stream

Hulu is facing competition from the likes of Google TV and a new streaming-only subscription service from Netflix, but one of its bigger challenges may be growing pains felt within its group of owners.

Hulu’s success in getting viewers to watch full-length TV episodes on the Internet has led to strained relationships with execs at Hulu’s network partners — ABC, NBC and Fox — who worry about Hulu siphoning away hard-earned ratings points from their shows. Hulu has its own dedicated ad sales force to sell spots on its fast-growing service, with its owners sharing in the returns. But in recent months, NBC started exercising its option to sell some of those spots themselves, pulling ad inventory back from Hulu to be sold by the Peacock’s sales team. Reportedly, NBC ultimately called dibs on every ad for “30 Rock” and “The Office” on the site. NBC Universal owns a 32% stake in the company that Comcast stands to inherit when its merger with the Peacock is complete.

An ad exec selling packages including “The Office” on both NBC.com and Hulu will have a much easier time impressing his bosses with his monthly sales than another salesman who can only offer “Days of Our Lives” on the company site.

“People are getting more defensive,” says Forrester Research analyst James McQuivey. “You’ve got the ad exec who has their quota, and to keep the advertiser, they bad-talk about how ineffective the digital (spots) are. I mean, he’s got his own Porsche payment to make. I sympathize.”

McQuivey says that privately, many complain that Hulu interferes with the way they’re used to running things, and there are always worries that networks will only be cannibalizing their own business with a site that commands lower returns than the traditional model.

“Even if you get the money from spending something on Hulu, those million people who watch on Hulu don’t show up on Nielsen,” McQuivey says. “So you can’t take them back to the client and leverage them against a higher CPM.”

But there are a few important advances that Hulu has brought to the table over the last three-and-a-half years that suggest it might survive a larger transition to widespread Web TV.

“I think it was kind of important to create a kind of YouTube for professionally produced content,” says Brad Adgate, a researcher for Horizon Media. Adgate notes that the average length of an online video view is now five minutes; five years ago, it was half that.

McQuivey agrees that there’s more to Hulu than free TV on the Internet. For one thing, it was the first site to provide and sell ad inventory for new television shows by major networks.

“Hulu’s innovating in advertising models more than anyone — they’re doing new kinds of advertising and getting feedback on ads,” McQuivey says. “Even if Hulu’s owners hate it, the value of what they’re learning from the experience about interactive advertising is probably too important (for them to cast it off) forever.”

The price of Internet video ads has also gone up a great deal, due in no small part to Hulu’s aggressive promotion of its programs. Fox is reportedly considering using online ads for make-goods if a given network spot falls below its promised delivery.

Though Hulu has set deals with plenty of other Web destinations, the portal lags behind Netflix when it comes to making itself available on new devices, likely because the back-and-forth over app deals with hardware manufacturers is a lot more complex when dealing with new TV episodes. Adgate suggests that the main thing that will speed the growth of Hulu — and Web TV in general — is the development of a new ratings metric. The thinking is that networks and studios will be more amenable to making content available online if there’s a better way to market the value of those online auds to advertisers.

“What you’ve got to prove to them is who’s watching it, and what kind of duplication there is,” he says. “Eyeballs are eyeballs. But that’s not worked out yet.”

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