Hulu Opens New Assault on YouTube

Oct 29, 12:34 PM

Current Headlines: By Brad Stone

The knives are out for Hulu.com.

Hulu is the new-media creation of two old-media rivals, General Electric's NBC Universal and News Corp.'s Fox. Since last March, when the broadcasters announced their joint effort to bring free, ad- supported television shows to the Web, the critics have predicted the venture would be doomed by diverging agendas, technical challenges and an all-powerful enemy: YouTube.

Now the defense is ready to present its case.

On Monday, Hulu, now an independent company with more than 100 employees and its own offices in Los Angeles, was to begin privately testing its new service with select users at Hulu.com. It was also to begin sending its videos to the sites of five previously announced distribution partners - Microsoft, AOL, MySpace, Yahoo and Comcast.

Hulu is presenting select episodes of some 100 television shows, including new and old programs from NBC ("The Office" and "The A Team"); Fox ("24" and "The Simpsons"); and an assortment of smaller broadcasters like USA Networks. It has also added two new partners: Sony Pictures Television, producer of hit shows like "The Shield" and "Seinfeld," and MGM, whose holdings include "Reno 911" and "The L Word," the company said.

All the shows are viewable inside a Web browser and festooned with advertisements.

"You will not find this lineup from top to bottom anywhere else," said Jason Kilar, the Hulu chief executive, who worked for nine years at Amazon.com.

Kilar said that although some of the same shows are also available free to viewers on sites like NBC.com and Fox.com, Hulu had a unique agenda: to combine the largest collection of professionally produced video with the widest audience possible.

Hulu, demonstrated last week to reporters, might surprise some of its critics. In addition to television shows, the company is experimenting with free movies. The service will commence with 10 films, including "Master and Commander" and "Sideways," though each will run with commercial breaks.

"I think there's a snarky desire to say this is big dumb media and this is a big dumb joint venture," said Peter Chernin, president of News Corp. He said he first conceived Hulu when thinking of ways to get Fox shows distributed as widely as possible. "If there is a product that's attractive to consumers, we'll be just fine," he said.

Hulu might prove most attractive to advertisers, since the videos on Hulu are full of promotional opportunities. Messages for companies like Cisco and General Motors remain above the video player during each program.

Hulu is also using overlays, promotional graphics that roam over the bottom of the screen during a show. (YouTube is also experimenting with this ad format.) Hulu is, however, cutting by half the length of traditional commercial breaks during its videos.

For each show streamed online, Hulu will split the revenue with the content creator and the distribution site, like MySpaceTV or MSN. The revenue splits will vary by the type of program, but the content owner will take a majority, according to Kilar.

Hulu will offer some features not available on other online video sites. One innovation will let users share television shows and video clips with friends. An easy editing tool will let users isolate a select clip of any length from a program and send the clip via e-mail message to a friend or post it on a blog.

"This is a big deal," Kilar said. "It is a great way to let users express themselves through our content."

Critics have questioned whether NBC and Fox are truly motivated to make Hulu succeed. Both networks make many of the same programs freely available on their own Web sites, although only ABC.com, among all the major U.S. networks, has cracked the list of top 10 largest video sites on the Web.

And Hulu must still overcome some significant obstacles. Its operating costs could quickly escalate. Hulu wants to offer the rich video that people are used to seeing on television. It will have to spend far more to store the video on servers and transmit the files to users, and at the same time, give away much of the ad revenue to its partners.

YouTube, by contrast, does not pay anything for its content - users freely submit it. It gets to keep all its advertising revenue and does not provide video in a high-quality format. Still, because of the high operating costs of running a video sharing service, YouTube is not thought to be very profitable for Google.

"To me the biggest challenge is economics," said James McQuivey, an analyst with Forrester Research who was briefed on Hulu last week.

"The content is good," he added, "and they are distributing it in all the right places. But over time they will have pressure to increase the quality of the streams, and that is going to raise costs even more."

Originally published by The New York Times Media Group.

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