On an HRTS panel in Los Angeles yesterday, heads of Hulu and News Corp.’s online efforts said advertising should be enough to support the budding online video business. “Ad revenue is still the biggest pot of money associated with content,” Hulu’s Jason Kilar said. But moderator Robert Iger of Disney cautioned that it still may not be enought to sustain original programming online.
The CEOs of top new media companies offered the Hollywood Radio & Television Society a rare upbeat forecast for digital profits at Tuesday’s Hollywood Radio & Television Society Newsmakers Luncheon, the first of the 2009-10 season.
Billed as “The Digital Chiefs,” the panel included YouTube Co-Founder and CEO Chad Hurley, Hulu CEO Jason Kilar, News Corp. Digital Media Group CEO Jonathan Miller, and Wired magazine Editor-in-Chief Chris Anderson.
From the outset, moderator and Walt Disney CEO Robert Iger challenged the panel to explain how meager digital revenues could justify future investment in quality content. The consensus: more advertising at higher ad rates plus more consumer purchases.
Hulu’s Jason Kilar expressed amazement that “people have gotten so down on advertising. Ad revenue is still the biggest pot of money associated with content.”
Iger admitted that he was “a naysayer” when Disney considered partnering with Hulu, but said Kilar “proved to us that the model works.” Hulu is a joint venture of Disney, NBCU and News Corp. and draws on those companies’ libraries for content.
Kilar said the Hulu model is based on a careful study of traditional TV history, noting that the 30-minute Alfred Hitchcock Presents contained only four minutes of ads when it first aired, compared to eight or more minutes today. “Clearly our limited ad load has a lot to do with our success,” said Kilar. “We’re applying a Hitchcock-style ad load and are able to charge twice as much for the CPM.”
Hulu’s pre-roll ads, which are generally 15 seconds long, score twice as high as traditional :30s when Nielsen measures audience retention and favorable comments, said Kilar. Why? “You make a conscious choice to watch a show on Hulu. People are more engaged than if it just pops up in their living room.”
News Corp’s Jon Miller emphasized that Hulu’s ads delivered even more value thanks to “behavioral targeting.” Hulu knows “so much more about consumer behavior and purchasing intentions” that the service can charge higher rates.
“It’s not going to rival [traditional] TV for CPMs, but that small movement from 20-cent CPMs to $1 CPMs translates into a huge impact because of the large number of views involved,” Miller said.
There was wide consensus that while consumer privacy remains a real issue, this was much less of a concern for younger customers. “Younger users understand and accept that they are being watched,” Miller said. “We’ll find out what the guidelines are as they emerge.”
YouTube’s Chad Hurley said he believes that “as long as the end user has control” over privacy, consumers will not only accept behavioral targeting, but embrace it, allowing ads to arrive “in multiple formats. If you get the right ad in front of the right person, you’ll get a reaction. That’s what drives Google’s business.”
Steering the conversation towards paid content, Iger expressed admiration for Rupert Murdoch’s recent declaration that his News Corp. will soon charge for all of its content as its Wall Street Journal now does. Iger polled the audience asking how many would be willing to pay for the (Murdoch-owned) New York Post’s popular Page Six gossip column, or for the average YouTube video. Very few hands were raised.
Wired Editor Chris Anderson took this in stride. The author of the recent New York Times bestseller Free: The Future of a Radical Price, Anderson said he believes media companies must distribute content for “free,” offset as much as possible by ad revenues, if only to compete with piracy.
But Anderson advocated simultaneously offering “a superior version” for sale. Anderson pointed to Apple’s iTunes Store as the best example of successfully charging for what was once widely perceived as free.
“But they’re not selling music,” Anderson said, “they’re selling convenience, service and packaging.”
Anderson also complimented Iger on Disney’s “brilliant business model” for Club Penguin, a social media site for children. “It’s free to play, but my kids pester me constantly to enter my credit card so they can buy a [virtual] pet for their penguins.”
Iger replied that “virtual goods are a new phenomenon,” adding that Disney has learned that items that exist only onscreen are nevertheless “very real to the purchasers.”
Both old and new media chiefs say they struggle to keep pace with the dizzying speed of technological change in the media marketplace.
“If you try to just play catch up, you’ll never succeed because the market keeps moving. You have to keep ahead of the curve,” said Miller. “Surfing is still a good term for it.”
And here’s where the new media companies enjoy a considerable advantage over their more established counterparts. “In the studio system, only a few people can greenlight a project,” said Miller. “But video game designers may change the online code for a video game multiple times a day without what traditional media would consider ‘adult supervision.’ “
Even that is not fast enough for Hulu’s Kilar, who frequently checks search.twitter.com to learn what customers are Twittering about Hulu throughout the day. “We’re constantly looking for ways to improve so the real time Internet is a primary source of information,” said Kilar. “We actually make changes to our service based on the feedback we find there.”
Hulu also uses Twitter to poll customers on new ideas, recently allowing consumers to pick the ad they would see — for Coca Cola or a diet drink. “We got a huge consumer response to this invitation to choose,” said Kilar, not to mention a corresponding jump in recall scores.
“Innovation really starts with a team willing to change on a moment’s notice,” said YouTube’s Hurley, who added that the company released more new features by mid-2009 than in all of 2008. “We always ask what would we do to beat YouTube at our own game. Paranoia is a good motivator.”
Particularly encouraging to program producers was Jon Miller’s estimate that as much as 70 percent of online media revenue will go to content creators. “The cost of distribution is so much less that it becomes a good argument for the suppliers to take a bigger share,” said Miller.
Still, cautioned Iger, “70 percent of much less money may not justify more investment in new intellectual property.”
Miller said these revenues will come sooner rather than later “possibly from higher CPMs or higher fees.” But he conceded that it may prove necessary to bite the bullet and reduce the “cost structures of creating content. That’s the hardest part to talk about because it affects everyone’s business practices.”