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Hulu chief executive Jason Kilar has said in the past that the online video site is considering a premium service that’s completely ad-free, but today at the NewTeeVee Live conference in San Francisco, he didn’t seem particularly enthusiastic about the idea.
The company has already been testing its Hulu Plus subscription service, which provides users with more content and allows them to watch Hulu on mobile devices like the iPhone — but it doesn’t eliminate ads. When GigaOm’s Om Malik asked whether Hulu is considering a more expensive subscription service that does do away with ads, Kilar said he isn’t ruling it out, but he added that the audience for that kind of service isn’t as large as Malik might think.
“There is nothing that prevents us from presenting an ad-free version of Hulu Plus,” Kilar said. “It’s just the economics.”
In other words, Hulu could set a price where an ad-free model would make sense, but when the company asked its users whether they wanted to pay a certain price and skip the ads or pay a lower price that’s possible due to advertising, the latter option appeals to “the vast majority,” he said.
In fact, the main focus of Kilar’s keynote speech was on how Hulu can improve the advertising environment. Even though subscriptions and other revenue sources are important, advertising is still the biggest way companies make money from premium content right now, Kilar said. As the world moves towards Hulu’s vision that viewers will be able to watch whatever they want wherever they want, brand advertisers will be able to deliver ads that are much more targeted to the interests of their audiences.
Kilar outlined some of the ways Hulu is experimenting with new advertising models. They include some methods that Hulu has announced already, such as the ability to choose from multiple ads and to choose to watch a longer ad at the beginning of a show if that means the rest of the program is ad-free.
And there are some methods that Kilar talked about publicly for the first time. When you finish a show, Hulu now uses an algorithm to recommend other shows that you will probably like. Kilar said 10 percent of users who get show recommendations end up either watching that show right away or at least bookmarking the show page to watch later. Another new feature allows viewers to opt-out of the ad they’re watching at the moment and choose another one. The first advertiser doesn’t have to pay anything, and the second advertiser pays a higher fee than normal, since they’re getting engagement from the viewer.
Research firm Nielsen found that after viewers saw an ad on Hulu, 45 percent remembered the brand and 55 percent remembered the message, compared to 29 percent and 22 percent, respectively, for regular primetime TV programming.
Malik also questioned Kilar about the “cord-cutting” phenomenon, where services like Hulu and Netflix are seen as replacements for normal television. Kilar responded that both Hulu and, from what he’s heard, Netflix were “consciously designed to be different and not a substitute for paid TV services in the living room.” For example, neither Hulu nor Netflix offers anything that can replace the live sports or news experiences.
So Kilar argued that cord-cutting discussions are premature, although we will probably see “serious changes in terms of the distribution landscape” over the next few years.
Earlier in his talk, Kilar also offered some numbers about Hulu’s audience and revenue.