Recent reports have surfaced that Hulu’s IPO could come as early as this fall. Hulu, which started as a rival to free video website YouTube, has taken huge strides since inception and is ready for the next step. How will this IPO affect the success of the online video business, especially video content company Netflix?
Most people first heard of Hulu when Alec Baldwin introduced the brand during the Super Bowl in 2009. Hulu launched in 2007 as a joint venture of NBC Universal, News Corp, and ABC Inc., with some funding from the Providence Equity Partners. Hulu has been building a constant revenue stream, taking in more than $100 million in reported revenue in 2009, and has already crossed that plateau this year. It has operated as a free, commercial-supported website that streams videos of TV shows and movies. Its main revenue stream comes from advertising, with the upcoming launch of Hulu Plus looking to gain additional revenue.
What does it mean for Hulu?
It will initially alleviate the financial obligations of the original partners NBC, ABC, and Fox, who will begin to have less involvement with the platform. Hulu will also face greater competition. Instead of simply rivaling online video players such as YouTube, it will be forced to go toe-to-toe with the websites of the aforementioned media titans and Netflix. By going public, offering a paid subscription, and streaming video, their core business is looking very similar to Netflix. In all likelihood, new subscribers will demand an increased number of television shows and movies – similar to what Netflix is experiencing with their subscribers. The big difference between the two is advertising. Netflix offers commercial-free streaming, while Hulu has built its business on advertising.
What does it mean for advertisers?
Hulu is an advertiser’s best friend, as it requires the user to watch advertisements. In June 2010, it outranked all other video content websites in terms of Ads per US Viewer Delivered, delivering 24.2 ads per viewer in June. It's the combination of fresh video content that is convenient for the user and the offering advertising space that makes Hulu very appealing.
As Hulu Plus adds subscribers, the advertising space within that environment could turn more competitive. Hulu Plus could rival Netflix’s streaming capability and drive up competition for their advertising space. Locking up this content could also lead to higher CPMs for advertisers. Hulu Plus is offering its introductory package at $1 more than Netflix’s basic package.
The tentative IPO is valued around $2 billion, which would be a huge boost to the IPO market that has endured its two worst years since the mid-70s. This IPO also legitimizes what marketing and web professionals have been saying all along: that people are spending more time online and getting their video content delivered to them online. It also helps to open the floodgates for more web companies such as Facebook and Twitter who are currently household names but are struggling to build a revenue stream. The impact of this pending IPO is unpredictable, but it should be exciting to watch.