Issue: Disney Investment in Hulu brings ABC programming
Commentary by: David Vinjamuri

Today Walt Disney is reported to be taking an equity stake in Hulu under a deal that will bring ABC content like Lost and Desperate Housewives to Hulu.  In just over 24 months, Hulu has gone from being yet another silly startup funded by old media giants NBC (GE) and Fox (Newscorp) to the dominant long-form video destination on the web with ad revenue expected to surpass Youtube in 2009.

The formula to success however, has nothing to do with Web 2.0 wizardry.  Quite the opposite.  This advertising blog believes that Hulu is great because it’s brought the simplicity of the 1950′s to online video.  The magic formula has two parts:

1. Put everything in one place
2. Don’t overwhelm programming with advertising

Hulu defied corporate tradition by linking to content they did not carry.   If a prime-time television show could be found anywhere on the Internet, watching it was as simple as going to Hulu and searching, whether that landed you on Hulu or a media web site.  This probably seemed foolish to competitors at the time.  Why send customers away?  But it turned Hulu into the Google for long-form video content – the best, most relevant place to search and find television shows and movies.

The second part to Hulu’s success was dictated by the online environment, which is notoriously unfriendly to interruptive video advertising.  Consider two ways of watching an episode of FOX’s hit drama ‘House’.  Turn on FOX on a Monday night and you’ll get the full episode of House – 42 minutes – served up with 18 minutes of advertising.  On Hulu, watch the same episode with just five commercial breaks of thirty seconds each.

What’s not immediately obvious is that the second strategy works better – even before Hulu starts targeting the ads it shows based on your user profile.  Why?  Because you’re much more likely to watch a :30 second ad than a three-minute advertising pod.  In fact with DVR penetration increasing to record levels, it is becoming clearer that fewer and fewer television viewers are watching advertising at all.

Hulu is a great success, but the point here is that part of their magic formula is simple: they aren’t greedy.  If television networks hadn’t progressively crammed more and more commercials down viewer’s throats, we’d probably still be watching there, too.  Ask FRINGE …