Improved Ads Will Be Critical Part of TV’s Future, Hulu CEO Says

SAN FRANCISCO -- As TV programmers online increasingly seek subscription revenue from Internet video distributors, the industry has overlooked the importance of ads to financing the development of premium content, Hulu CEO Jason Kilar said Wednesday. For content owners “the leading source of how you get a return on your investment is through advertising,” he said at the NewTeeVee Live conference. “That’s going to play a very big role in terms of the future of television.” So Hulu is working on offering better ad options for marketers and consumers, he said. The company is on track to sell more than $240 million in ads in 2010, up from $108 million last year and $25 million in 2008, Kilar said. He declined to comment on the prospects for an initial public offering by Hulu.

By offering marketers better demographic data than linear TV providers, Hulu can give them more confidence that their message will reach the kinds of viewers sought, Kilar said. The company can identify with 99 percent confidence the gender of a viewer, even one not registered with Hulu.com, by looking at viewing history, he said. That way a shampoo advertiser can avoid playing ads to bald men, Kilar said. The site asks registered visitors regularly whether the ads they see are relevant to them, whether they're in the market for a new car and whether they'd like to replace an ad they're watching with another, he said. Hulu can also directly target viewers with promotional messages tailored to them. It can create promos for other TV programs that use a registered viewers name on the screen, grabbing their attention, Kilar said.

"The ads on Hulu are 55 percent more effective than the same ads that run on traditional channels,” Kilar said. Hulu’s success selling ads has helped it solidify its partnerships with TV programmers, some of which are owners of the company, Kilar said. Hulu is a joint venture of News Corp., NBC Universal, Disney and Providence Equity Partners. “When you're sitting on a business that has well more than doubled from 2009 to 2010, in a tough economy by the way … I think we've earned our position with regard to our board members."

Even with the importance of ads, subscription revenue will remain important, Kilar said. That’s a reason Hulu has been reluctant to offer all its services on devices directly connected to TV sets, he said. “In the living room, if you're a cable channel, you get advertising but you also get a percentage of the cable bill,” he said. “That is an economic reality we need to be cognizant of and sensitive to. We need to make sure we have an economic model that makes sense for content owners.” Hulu’s new subscription service Hulu+ will be a big part of that, Kilar said. Ultimately, the company wants to be on “any Internet-connected device on the planet,” he said.

Nothing prevents Hulu from offering an ad-free, subscription service at a higher price, Kilar said. But most consumers prefer a lower-cost subscription that’s partly subsidized by ads, he said.