Hulu, the online television and movies provider touted as a potential competitor to YouTube, reportedly intends to go public, which will likely result in a classic good news-bad news scenarios for advertisers, according to online advertising researcher eMarketer Inc.
The initial public offering (IPO) flotation could value the world's No.2 online video streaming site at $2 billion. Earlier it had raised $100 million in financing from Providence Equity Partners.
Hulu, which is owned by a clutch of companies including Walt Disney's
"The IPO's capital infusion will give Hulu greater resources for obtaining more studio-level video content, the kind of content that soothes safety-conscious brand marketers. That extra cash will also help Hulu compete against various forces like Netflix, the cable companies and TV networks," the eMarketer report said.
The pressure that shareholders will place on Hulu is harder to gauge than the current pressure from its parent TV networks. As an independent entity, Hulu will incur greater costs for locking up video content as the broadcast networks that now supply nearly all of its content will become Hulu's competitors.
Therefore, Hulu will need substantial payments to entice deal-making. Greater expenses for Hulu likely will mean higher cost per thousand impressions (CPMs) for video advertisers.
An online advertisement impression is a single appearance of an advertisement on a web page. Each time an advertisement loads onto a user's screen, the ad server may count that loading as one impression.
Hulu will probably need to place more ads per video stream. But that can increase clutter that reduces the advertising's effectiveness, as it can turn off audiences who are put off by more ads.
"Some of Hulu's owners also would like to dial back how much free video they offer, believing it diminishes the value of their reruns, and could entice viewers to ditch their cable or satellite subscriptions, which generate hefty revenue," according to a Wall Street Journal report in August. That possibility could affect Hulu's usefulness for advertisers, even if the rumored IPO fails to take place.
The site is the top online destination for broadcast TV shows, and each Hulu viewer saw an average of 27.9 ads in July 2010, in contrast to only 4.6 ads per user on YouTube, according to comScore Video Metrix.
ComScore Video Metrix said advertisers ran over 783 million streaming-video ads on Hulu in July 2010, but about 452 million on the second-largest online video property, the Tremor Media network, and only 219 million on YouTube.
When it comes to the average number of minutes each audience member spent viewing videos in July 2010, only YouTube outranks Hulu. Internet users spend 282.7 minutes streaming video on YouTube vs. 158 minutes on Hulu, according to comScore.
Advertisers bought more ads per viewer on Hulu in June 2010 than on the sites of some of Hulu's current owners, such as ABC or FOX. Trust is the core reason why brand marketers will run more video ads on Hulu or TheWB.com than on YouTube.
Much of today's online video content presents safety risks for brand marketers, who are concerned about the suitability of the content for a given brand. The uncertainty encourages many brands to stay "traditional" and simply place video ads only within fully trusted content, such as full television episodes on Hulu and the TV-network-owned sites.
International Business Times, The Global Business News Leader
Walt Disney is a Motley Fool Inside Value recommendation. Walt Disney and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
