Editechial
Your Editorial of the Tech IndustryWhat is Hulu doing to Youtube?
To get the answer to this question, just ask Dallas Maverick’s owner, Mark Cuban. Mark has been widely quoted as despising Youtube (GOOG) and everything it stands for. And he has not backed down with his latest Blog post when he said: “Hulu is kicking Youtube’s Ass”. He goes into some more detail below:
“It is coming up on 2 years post my declaration that only a moron would buy Youtube and that Google was crazy for actually going through with it. In that period of time, while Youtube traffic has skyrocketed, they have been steadfast in their admission that they haven’t been able to monetize Youtube’s traffic in a profitable manner. Youtube has become the poster child for the old saying “we are losing money on every sale, but we will make it up in volume”. To the Youtube fan club, its inconceivable that any website with so much traffic and marketshare could be in anything but an enviable position. The fan boys would be increasingly wrong. The Youtube business model is broken and there is no light at the end of the tunnel as they are currently constructed. The reason is Hulu.”
Anyone in the industry would be hard pressed to agree with Cuban that Youtube is being ‘beat’ by Hulu. However he brings up a very good point when he talks about revenue. Youtube has never come close to profitability and with their constant growth they have gained increased reach but with limited revenue growth. However, if I may say so, Cuban is being very short-sighted if he believes that Youtube is simply going to continue on the same path they are on presently. Let’s not forget that some of the smartest tech individuals in the world work for Google and they are not going to let a $1.6 billion dollar purchase go under.
Making Youtube profitable is not going to happen by the mere selling of Overlay advertisements that Google has been doing for the past 6 months. Speaking with some executives from the Yume video advertising network, it appears that Google is having trouble selling campaigns for UGC (user generated content). And we all know that Youtube, with few exceptions, is made up of these amateur videos. And since these pieces of content are by nature unpredictable, even Google will not be able to make that side of the business profitable.
However, I believe Mark Cuban to be missing the big picture. Hulu is run by TV executives who have a history of missing the mark when it comes to digital distribution. Youtube is in the unique position to launch their own “Hulu” on Youtube.com. And by doing this they would be able to leverage the tens of millions of daily users and would crush Hulu.
What does Youtube have to do?
1. Youtube needs to sign several large scale studios to distribution deals, much like Hulu signed FOX and NBC.
2. They have to have filters in place to inhibit users from uploading copyrighted materials from the studios.
3. They need to start selling pre, mid and post rolls. And don’t tell me the users would leave the site because Veoh.com is proving that users have no problem viewing 15-30 second commercials as long as it is paired with BROADCAST QUALITY content. If you are not familiar with Veoh, they are currently embedding videos from Hulu, CBS and Viacom into their sites, and each video is loaded with advertisements.
So don’t go rushing to either side on this debate. Cuban is off base if he thinks that Hulu is going to generate more revenue than Youtube because he is assuming Youtube to be stagnent. However Youtube also has quite a bit of work to do before they can truly “win” in the online video space. Remember, a business is only a business when you MAKE MONEY.
freshraisin said on Wednesday, June 18, 2008, 23:13
Do you have any knowledge of the history of any of this? Hulu was formed precisely when negotiations between youtube and the major content companies you cite fell through, probably because google didn’t realize that content is king and thought they had more leverage than they did. The content companies then formed a joint venture (specifically Hulu) and pooled all their content on it, allowing them to collect a much larger portion of the advertising.
GF said on Wednesday, June 18, 2008, 23:37
I’m actually very familiar with this deal. I was actually working for a VC firm at the time analyzing the industry. However Hulu is a JV between NBC and FOX, that leaves ABC, Viacom, CBS, et al that still need an online distribution solution. Some of the Studios have signed agreements with Hulu, such as Viacom with the Daily Show and Colbert Report, but these are non-exclusive digital content licenses. And even though Viacom has the billion dollar lawsuit against Youtube, the studios all have one common language: revenue. And Youtube’s massive audience can equal large scale syndication. It will all depend upon Youtube’s flexibility with ad units, since Overlays are not going to be pulling the same type of CPM’s as pre, mid and post rolls.
Jim Kukral said on Thursday, June 19, 2008, 11:06
For Youtube to make money they have to start niching content. Nobody wants to watch a pre-roll on a skateboarding video. They have to create niche portals of professional, or how shall I say, content that people other than 12-year-olds want to watch.
Then they can monetize through many ways, including forcing businesses to pay for the ability to upload videos and for inclusion. So many ways. But they’re not going to be able to monetize skateboarding and music videos. That’s a dead end game.