Speed Racer. Like millions of other kids, he couldn’t wait to watch the hero’s slick Mach 5 take on villainous rivals in equally enticing race cars. The show came on at 3:30 p.m. If he was late, he missed it. Back then, there were no VCRs or DVRs to record the show for later viewing. There was no Internet. Like everyone else at the time, Kilar had to watch TV on the schedule dictated by the networks.
Perhaps that’s why when Kilar grew up, he set out to change that antiquated model of television watching. By the time Kilar had reached the ripe old age of 36, home-recording devices had been household fixtures for well over two decades. But as far as Kilar was concerned, having to think ahead and set a device to record a show was still too much work. That’s why accepted the task of running Hulu, a joint venture by media giants NBC Universal and News Corporation that serves up
TV shows and movies through a slick Web interface, when and wherever you want to view them. As Hulu began to take shape, speculation quickly turned to skepticism. What’s a Hulu? In August 2007, this question ricocheted through the blogosphere to a chorus of derisive laughter. NBC and Fox [News Corps’ TV broadcasting subsidiary] were going to make the Internet safe for television! They were building a “YouTube killer”! And they were calling it Hulu! It was almost too perfect—an absurdist topper to the idea that two major broadcast networks could devise an Internet video service people would actually use.The name was even more delicious than the venture’s placeholder moniker, NewCo, which the online world had changed to ClownCo.And now Hulu? It means “snoring” in Chinese, one blogger declared. “‘Cease’ and ‘desist’ in Swahili,” Michael Arrington reported on TechCrunch. “Perhaps they should have just stuck with ClownCo,” he added.
In Mandarin, hulu actually means “bottle gourd,” or “holder of precious things.” But the word’s meaning doesn’t really matter much. What does matter is that since Hulu aired its first television program in March 2008, it has become the third most-viewed online video site, and it’s still rapidly growing. Entertainment Weekly called Hulu “some kind of TV addict’s fever dream.” One of the same bloggers who had earlier ridiculed Hulu soon pronounced it “brilliant.” And Mr. Arrington, coeditor of the famed blog TechCrunch and one of Hulu’s harshest early critics, ultimately declared, “Game over. Hulu wins.” The big question is this: Of all the world’s Web startups and video sites, what has made Hulu such an instant and unquestioned success?
Focus On the Customer
When Jeff Zucker, CEO of NBC Universal, and Peter Chernin, president of News Corporation’s Fox network, hired Jason Kilar, they handed him a relatively empty canvas in an industry mired with complexities. Kilar could have set any of a thousand different priorities in creating Hulu. But Kilar focused first on one primary priority that would guide the entire venture: the viewer. He insisted that Hulu be “obsessed with users.” If Hulu didn’t work for viewers, they simply wouldn’t tune in. Kilar wanted to capture the best parts of watching television the oldfashioned way and combine them with the best that modern technology could offer. He and his Hulu team considered all the barriers to watching television and movie programming via the existing options and then set out to squash them.
Hulu is Web based, so it overcomes two of the most common inconveniences to watching regular TV It’s available 24/7, and . it doesn’t require that viewers set a device for recording. But all Web video sites offer those advantages. Beyond these basics, to ultimately draw people away from their TV sets to watch their favorite shows online, Hulu had to offer more. So Kilar and his team focused on some very specific benefits.
User-friendly The top Internet services—Google, Flickr, YouTube—earned their top spots because they’re simple. Hulu needed to do more than just claim user-friendliness—its site needed to be clean, clutter-free, and have high-quality video. The site needed intuitive controls and navigation tools. And it needed to work seamlessly with all the popular Web browsers, without requiring additional downloads or special players.That obstacle had limited the success of many online video services. Kilar’s test for simplicity? His 62-year-old mom, Maureen, had to be able to cue up any video on the site within 15 seconds. As a result, Hulu emerged as the sleekest, easiest-to-use,
and most professional video site on the Internet. According to Will Richmond, president of research firm Broadband Directions, Hulu “set the gold standard” for a TV-watching experience. “It has optimized all of the ingredients—quality of video, navigation, and controls.” Videos stream almost instantly in high resolution on a large or even full screen, instead of a “postage-stamp-size screen with grainy video,” as Kilar puts it. What does Kilar’s mom think? “She talks a big game, but she’s not technical,” said Kilar. But when Maureen discovered how easy it was to pull up episodes of the old TV classic Alfred Hitchcock Presents on Hulu, she was hooked.
A Ton of Content Kilar also knew that slick and easy wouldn’t be enough without having programming that people wanted to see. When given the initial list of programs that would be available on Hulu, Kilar was very disappointed. “It was one piece of paper,” he said. “I wished it was a phone book.”
Kilar informed the gurus at NBC and Fox that for Hulu to work, the two companies needed to provide access to every movie they had ever made and every show they had ever aired. The network chiefs explained that existing contracts and legal complexities made that virtually impossible. But Kilar held his ground, and NBC and Fox quickly came around, digging deep to gain legal clearance for everything that they could. To give viewers even more content, Kilar suggested a strategy to Fox and NBC executives verged on heresy.
He wanted to show programming from competing networks and production companies—to sell the competition’s products. In fact, he wanted Hulu to be perceived as its own entity, not tied to any existing network. “Hulu is about the shows, not the networks,” Kilar argued.“The shows are the brands that users care about.” Once the idea settled in, Chernin and Zucker agreed.
As a result, when Hulu went live, it boasted more than 250
TV shows and 100 movies from Fox, NBC, Universal, their affiliated cable channels, and more than 50 content partners such as Warner Brothers and indie film studio Lionsgate. In addition to hosting content on its own Web site, Hulu links seamlessly to video content on other video sites, even those of competing networks. In the time since Hulu began airing programs, the number of content partners has swelled to 130 and its library has grown exponentially. That library includes full episodes and even full seasons of television programs, clips from shows (clips of NBC’s Saturday Night Live are among the most viewed on the Internet), movies, and even instructional Web videos such as “How to Make Stuffed Crust Pizza.”
Cost (as in Free!) Kilar also knew that for Hulu to succeed, it had to be free. After all, that’s how people had been watching broadcast television for decades. And on the Internet, people have come to expect “free.” But offering free content created a problem. Such programming had to be supported with ads, and viewers don’t like those either. So Hulu created a very reasonable compromise.
The standard for broadcast television is eight minutes of ads per half-hour of programming. Hulu inserts only two minutes of ads per half hour. Given all that they get, viewers don’t seem to mind the brief interruptions. Great Quality, User-based Programming, and Embed Codes A great video player and lots of free programs are things that viewers want most. But in his relentless pursuit to please viewers, Kilar went even further. He went for first-class quality, in both selection and viewing.
Hulu relies on a small army of film students to screen every minute of footage, looking for video and audio glitches. And instead of having Hulu executives set programming priorities, Hulu lets users do it. Popularity alone moves a show up in the ratings. As a result, some rather odd shows have risen to the top. One of most highly rated shows on Hulu is It’s Always Sunny in Philadelphia, an FX series starring Danny DeVito. Another is Arrested Development, a cult favorite that won Emmys and critical acclaim but was canceled by Fox because of poor ratings.
In yet another “Is this guy crazy?” move, Kilar decided that Hulu should provide embed codes so that users could post content on their own sites. Not only does Hulu feature content from the competition, it gives its own content away! Users love this because they can share programming with others. It works for Hulu because it doesn’t really give the content away. It enables its videos to go viral, bringing more viewers to sponsors’ ads.
Embracing the Future
Hulu’s focus on pleasing viewers is certainly showing results. In only a few months, Hulu ranked among the Web’s top-ten video sites, besting even ESPN.com. The month following Hulu’s airing of a very clever ad featuring 30 Rock’s Alex Baldwin on Super Bowl XLIII, the site’s viewership increased by 55 percent to 7.8 million with 332 million streams. This catapulted Hulu past Microsoft and Viacom, putting it at the heels of number-three Yahoo! (with 353 million streams) and number two MySpace (with 462 million streams). A few months later, Hulu passed Yahoo! In the world of online video sites, YouTube still dominates with 5.3 billion streams every month. But the market offerings of YouTube and MySpace are very different from Hulu’s, so Hulu lays claim to being the market leader for TV-oriented sites.
Despite its success in such a short time, Hulu ‘s future is hardly guaranteed. Consumers are fickle, especially in a world of constantly changing technologies where what’s hot today may be old news next year. NBC and News Corp recently added Disney and it’s ABC library to the partnership. But numerous other user-friendly, TV-style sites lurk in the shadows, including CBS’s TV.com and Viacom’s Joost. And don’t forget one of the biggest competitors of all: viewers themselves.A major reason that NBC and Fox created Hulu in the first place was to combat video piracy. They were constantly having to intervene to pull clips of their shows off of YouTube and other video sites.
And peer-to-peer BitTorrent networks were threatening to inflict the same damage on the television industry that the likes of Napster inflicted on the music industry. Shortly after their initial plans leaked out, Chernin addressed the piracy problem head on. “You can’t protect old business models artificially,” he proclaimed. Unlike music industry executives who held back far too long, Chernin and Zucker realized that if they didn’t put their shows online, someone else would. “The best way to combat piracy is to make your content available,” said Zucker. “We want to make sure consumers know they don’t need to steal our content. That’s what Hulu is all about.”
But while the minds at Hulu feel that their product will do a great deal to combat piracy, they are more concerned about a bigger issue: Giving the consumer everything they want may not always be the best thing for the business. From a profitability standpoint, the impact of making content available with minimal commercials could have adverse effects on the business models that have worked for decades. As viewership Company Cases turns from the TV to the Web, can the revenue generated through the new media replace that which will undoubtedly be lost through the old? Jason Kilar himself best captures the opportunities and threats presented by the volatility of the industry. “The world has turned completely upside down. I find that very inspiring. Others might be scared out of their wits. But to me, this is the way media always should have been.”
Questions for Discussion
1. Describe Hulu’s market offering in detail. What value is Hulu really offering to users?
2. Is Hulu customer-driven? Why or why not?
3. Think about the three considerations underlying the societal marketing concept. Is Hulu sustainable? Support your conclusions for each consideration.
4. What recommendations would you make for Hulu’s future?
Jessi Hempel, “Hulu’s Hurdles: Internet Video Sharing Site Tries to Serve Fans and Networks Alike,” Fortune, February 24, 2009, accessed online at www.money.cnn.com; Frank Rose, “Free, Legal, and Online: Why Hulu is the New Way to Watch TV,” Wired, September 22, 2008, accessed online at www.wired.com; Chuck Salter, “The Fast Company 50: #3 Hulu,” Fast Company, March, 2009, p. 59; Lynne d’Johnson, “In Only One Year, Hulu Becomes Fourth-Largest Video Site in U.S.,” Fast Company, March 23, 2009, accessed online at www.fastcompany .com.