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An Online TV Site Grows Up

hulu.com
hulu.com

Five years ago, some of the most powerful players in television banded together to introduce Hulu, a streaming service intended to revolutionize the TV industry.

This week, Hulu will look more like a traditional network than an Internet pioneer.

At a presentation on Thursday in New York, Hulu, created as a service for watching network television online, will pitch advertisers on original programming in an annual ritual known as upfronts that are typically reserved for cable channels and network broadcasters.

Hulu executives are expected to take the stage to sell advertisers on new series. The executives will also promote the service’s desirable demographic of young viewers who turn to Hulu for popular network sitcoms like “New Girl” and “Family Guy,” available only after they are broadcast on Fox.

As an online television destination, Hulu is something of a teenager now, sometimes tolerating feuding parents and succeeding perhaps in spite of them. Hulu is growing steadily, despite disagreements among its corporate owners, and the new restrictions those owners have placed on free streaming of network shows.

This week Hulu will announce that it has topped two million subscribers for its $8-a-month Hulu Plus service in the first quarter, half a million more than it had at the end of 2011. But it has not been an easy path to growth.

The executives who were the greatest champions of Hulu at its inception — Jeff Zucker, the former chief executive of NBCUniversal, and Peter Chernin, formerly the chief operating officer at News Corporation — have moved on. Their successors are less enamored with the service, which they view as a potential threat to traditional revenue streams. Hulu’s owners are the Walt Disney Company, the News Corporation’s Fox Broadcasting unit, Comcast’s NBCUniversal unit and Providence Equity Partners. In 2007, when Internet television viewing began to take off in earnest, Hulu’s corporate parents raced to create a legal TV-streaming service supported by advertising. But more recently, those corporate parents have struck multibillion-dollar streaming deals with cable and satellite operators to make shows available online to their subscribers with tablets or smartphones.

Even though its audience was growing — and continues to grow — Hulu’s corporate parents questioned whether giving their shows away online could put at risk the hundreds of millions they earn from traditional cable and satellite deals. Hulu has embraced its new reality, and has maintained growth while doing so. With roughly 38 million visitors a month, according to the measurement firm comScore, the service had revenue of $420 million in 2011, up 60 percent from $263 million in 2010.

Attesting to the shift toward subscriptions, the company expects revenue from Hulu Plus to account for more than half of its total in 2012.

“The bulk of our business is working with those big media companies, and they’re going to make choices based on how they see the whole ecosystem evolving,” said Andy Forssell, Hulu’s senior vice president of content.

But Hulu still has to figure out how to marry its own subscription service with the systems that are being set up by the cable and satellite operators.

A few years ago, Hulu had a motivational effect on the media industry. It is widely credited with accelerating a trend toward on-demand television that forced networks and studios to figure out what to stream online, and what not to stream.

Some shows, like “Community” on NBC and “Fringe” on Fox, have benefited markedly from online streaming. “If we’re really on our game, people will look back on it and will say, ‘Wow, I can’t believe TV was like that in 2007,’ ” Jason Kilar, Hulu’s chief executive, said at a recent advertising industry conference. He declined interview requests for this article.

But like Netflix , Hulu has faced challenges in acquiring can’t-miss TV, even from its owners. At the Hulu board level, “there is disagreement about the amount of investment necessary to acquire content for Hulu Plus,” said a television executive who insisted on anonymity because of business relationships with Hulu.

So, like Netflix, Hulu is making a push into original series. It has also licensed 13 television shows that will appear exclusively online.

Hulu differs from Netflix, though, in that it streams most of its shows at no cost with ads attached, opening them up to a much wider potential online audience. Netflix is available only to subscribers.

Mr. Forssell said that Hulu would try to “get stuff made and not compete with our partners” as it waded further into original series. He also shops for exclusive digital syndication deals like the one Hulu struck to stream “Community,” an NBC sitcom popular with the young, Web-savvy men who often watch television online.

After a scrapped bid to sell Hulu last summer, its owners have said they are committed to Hulu for now. Even so, talk of a possible sale lingers. This fall, Providence Equity has a window to exit the joint venture, according to two executives with knowledge of Hulu who insisted on anonymity to avoid harming business relationships.

“Providence can stay, or they can get out of their position. The owners would be forced to buy out Providence’s share,” said one of the executives. A spokesman for Providence declined to comment.

Hulu also faces increased threats from online competitors, most notably from YouTube, owned by Google. YouTube will hold its upfront in May and will fight for its piece of the estimated $39.5 billion that United States marketers will spend in 2012 to place ads online, up 23 percent from 2011, according to the research firm eMarketer.

What it lacks in mass audience, Hulu tries to make up through data collection on viewers and then offering those appealing demographics to advertisers.

Stoking envy among traditional television executives, the Web site collects a trove of data on its users’ preferences in programming and ads. Through its “Ad Select” feature, viewers can choose which ads they see.

If a user selects a Diet Coke ad, for example “in the future, I know you’re more of a diet-conscious person and can send you more ads for diet drinks,” said Jean-Paul Colaco, Hulu’s senior vice president for advertising.

“On a one-to-one basis, advertising placed on Hulu for our clients was more effective than advertising placed on television for the same programming,” said Steven J. Farella, chief executive at TargetCast TCM, which buys advertising time for companies.

Hulu competes with its owners not just for advertising dollars, but for viewers’ time.

“Battleground,” the Hulu original sitcom about a Senate campaign that premiered in February, was originally a pilot script developed for Fox. “A Day in the Life,” the reality show from the documentarian Morgan Spurlock, which follows celebrities for an entire day and started its second season in March, was initially pitched to cable channels. This summer, Hulu will introduce “Up to Speed,” an unscripted travel series from Richard Linklater, who directed movies like “Dazed and Confused” and “Slacker.”

To date, though, the audience for “Battleground” has not matched the online audience for TV sitcoms like “The Office,” from NBC, or “New Girl,” from Fox.

On Hulu’s monthly list of its top 100 videos, only one episode of “Battleground” shows up. Of course, viewers could discover “Battleground” a month or a year from now, and that is fine with Hulu.

The executive producer of “Battleground,” J.D. Walsh, said Hulu was “looking for less of a broad audience across every demographic and more of a specifically targeted group of people who are passionate about the show.” Mr. Spurlock said his deal with Hulu gave him greater ownership of “A Day in the Life.” Plus, he said, the service reflects how the people he knows watch television these days. “A lot of friends of mine have already started to give up their cable subscriptions,” he said.

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