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Forecast: Ad Spend Will Hit Bottom In ‘09 As Paid Search Lights The Way

Global online advertising spend is the only category ZenithOptimedia reckons is growing this year, according to its latest forecast. The agency (via Reuters) says it will grow 10.1 percent for 2009 and, longer term, will rise from 2008’s 10.5 percent of all ad spend to 15.1 percent in 2011.

Thank paid search - it’s due to grow 20 percent in the U.S. this year against just three percent for conventional display and 1.8 percent for classifieds. And pity newspapers, which are projected to lose 14.7 percent.

Industry-wide, Zenith expects an 8.5 percent drop in all-format ad sales in 2009 (revised down from an earlier projection of a 6.9 percent drop), but returning to a 1.6 percent growth for 2010. Both figures contrast with GroupM’s forecast last month, which expects 5.5 percent 2009 decline and 2010 not yet in positive territory with a 1.4 percent drop. And Zenith’s And don’t expect that sudden growth to manifest at home - North America specifically is expected to post a third consecutive fall in ad spend, dropping 2.4 percent in 2010.

Studio Lexus

Kudrow behind wheel of Lexus Web channel

Andrew Wallenstein

Sept 23, 2008, ET

Lexus is making an ambitious foray into online entertainment with former "Friends" star Lisa Kudrow in the driver's seat.

The carmaker is launching an Internet-only branded channel today stocked with a full slate of original programming headlined by Kudrow in a shortform comedy series in which she plays a nutty shrink. 

The choice of the Emmy- winning Kudrow for the lead role in "Web Therapy" should bring attention to what Lexus is calling L Studio, available at LStudio.com. 

But the creation of a marketer-branded broadband channel also is bound to get attention given its only precedent: Bud.TV, a similar venture Budweiser kicked off after the Super Bowl in 2006 only to watch it fail after a reported $30 million investment. 

"We learned from some of the mistakes that they made in the beginning," said Sandy Blanchard, owner experience manager at Lexus' marketing division, who oversees L Studio. 

Blanchard would not divulge the budget for L Studio but made clear that it is not in the ballpark of $30 million. "We were pleasantly surprised as to what we were able to accomplish with what the budget was and the fact that we have people of the caliber of Lisa Kudrow," she said.

In "Therapy," Kudrow plays Fiona Wallice, a psychotherapist who conducts absurdly abridged three-minute sessions via the Internet that do little to help her clients. She juggles five different clients in 15 episodes, including those played by Bob Balaban, Jane Lynch, Rashida Jones, Tim Bagley and Dan Bucatinsky.

"This is the kind of idea that's just meant for the Web," said Kudrow, who wrote and produced "Therapy" with Bucatinsky, her partner at Is or Isn't Prods. Don Roos, who directed Kudrow in films including "The Opposite of Sex," directed all episodes of "Therapy."

Kudrow isn't Hollywood's only representative on L Studio. "Sex and the City" writer-producer Amy B. Harris joins the site in October with a scripted series of her own, "Puppy Love," in which she examines the relationships between people and their dogs. Harris recruited many other "Sex" writers to contribute to the 40-episode series. The cast includes Famke Janssen, Janel Moloney and Heather Burns.

In an effort to keep the buzz going for the project, Lexus plans to recruit more celebrity contributors in the coming months. For now, the rest of L Studio is an eclectic mix of high-toned nonfiction programming that concerns everything from art to architecture to science. Some notable figures who are profiled on the site include the Doors' Ray Manzarek and designer Patricia Field.

Taken together, the connective thread between the programming mix and the Lexus brand, Blanchard said, is the theme of innovation. "We kind of look at ourselves as a broadband HBO," she said. "Being on broadband in and of itself is innovative for a lot of these artists."

For marketers, the Internet represents an opportunity to talk directly to consumers in whatever form they choose rather than fit into the 30-second pods or product-integration opportunities that TV networks make available to them. While many top brands maintain elaborate Web sites, few have gone to the length of defining themselves as entertainment channels.

In 2001, another car manufacturer, BMW, played a pioneer role in this form of entertainment, introducing a series of branded short films for the Internet titled "The Hire."

As Bud.TV did with Budweiser, L Studio will not shill for Lexus too emphatically. Most of the channel's programs barely show or mention the brand or specific vehicles, "only when relevant and appropriate," Blanchard said. "We don't want to force it."

But a few shows will contain less oblique references to Lexus. "Parts Art" focuses on three artists who take parts of Lexus vehicles headed for the scrap heap and repurpose them as sculptures. Another program focuses on the formation of the Fairmont Hotels & Resorts' "hybrid living" suite, which Lexus co-sponsors. In addition, L Studio will have links that lead to other sites that offer more direct pitches to Lexus.

Lexus is not mentioned in "Therapy."

In contrast to Bud.TV, which was criticized for a cumbersome registration process that included age verification required to keep minors from risque videos, L Studio is sticking with PG-style content. To lower the barriers of entry to the site, content can be viewed without registering for L Studio, but in order to add comments or receive e-mail notifications of new episodes, a brief registration form is in place.

L Studio launches with 35 segments, each ranging about three to five minutes in length. Some will be one-off content, others will be series like "Therapy" or DVD-like extras that extend them. Three new segments will be added to the site each week. By March, Blanchard estimates L Studio could have as many as 150 segments available.

For Lexus, L Studio is intended to reach beyond the carmaker's core market segment to introduce the brand to a new generation of consumers. "Our demographic is a little bit older and we think our younger target is more interested in this type of entertainment," Blanchard said. 

While L Studio is launching with minimal interactivity, it is considering adding more features in the coming months including more user-generated initiatives. One series in development, "1000 Frames Per Second," would challenge users to set select slow-motion photography to words or music.

Also not in place at launch but eventually expected is a syndication strategy that will take L Studio's content off-site to other portals. 

Mindful of the troubles Bud.TV experienced, Lexus has internal traffic projections in place for L Studio and plans to re-evaluate this experiment about six to seven months after launch.

L Studio was developed by Intelligent Life Prods. and Lexus' agency, Team One Advertising.

Kudrow is one of a growing number of established actors trying their hand at online programming. Neil Patrick Harris ("Dr. Horrible's Sing-Along Blog"), Rosario Dawson ("Gemini Division") and Brad Garrett ("Dating Brad Garrett") are just a few of the big names who have dipped a toe in the nascent webisode genre in recent months.

Lexus Web Series

'Friends' stars reunite online

Courteney Cox acts in Lisa Kudrow's Web series for Lexus

By Andrew Wallenstein

June 23, 2009, 05:00 AM ET

Lisa Kudrow (Getty)

A “Friends” reunion of sorts is coming to the Internet courtesy of Lexus.

The carmaker is launching a second season of “Web Therapy,” an online comedy series starring Lisa Kudrow for its branded-entertainment network, L Studio. Returning June 23, “Therapy” will feature Kudrow’s fellow “Friends” alum Courteney Cox as a guest star.  

With the release of 15 new short-form episodes of “Therapy,” Lexus has also retooled its strategy to syndicate the series to iTunes, YouTube and Hulu. When L Studio first launched last September, all of its content was confined to the website, which has also since been redesigned to incorporate high-definition video that loads faster and can be shared on social networks. 

Kudrow, who won a Webby Award in June for outstanding comedic performance for “Therapy,” stars as Fiona Wallice, a shrink who employs pretty shaky methods on a clientele she counsels over Webcam. In addition to Cox, Kudrow will play opposite Alan Cumming, Steven Weber and Victor Garber in the second season.

Beginning with the July 6th episode, Cox plays a psychic who seeks Wallice’s help because the dreams she relied on to deliver her psychic vision no longer occur. It’s a comic wink to the role played on CBS’ “Medium” by her sister-in-law Patricia Arquette--Cox even alludes in character to the famous family into which she married. “Good god, how many of them are there really?” she jokes about the Arquette clan.

While episodes will continue to be available at LStudio.com, bundles of three episodes will be available on iTunes for $1.99; a season pass for “Therapy” will cost $7.99. On YouTube and Hulu, Lexus will be in the unusual position of being an advertiser who will sell spots within “Therapy” to other advertisers.

Robin Pisz, national interactive marketing manager at Lexus, said the company opted to syndicate “Therapy” upon recognizing that traffic to LStudio dropped after the initial publicity surrounding its launch and a subsequent Internet marketing push. 

“I think the goal is to make the content available where the viewers view video as opposed to always expecting them to come to L Studio to find that content,” said Pisz, who would not divulge traffic figures for LStudio or the level of investment Lexus was making in its programming.

Lexus is returning other series on L Studio including, “Puppy Love” from “Sex and the City” writer Amy B. Harris. The only new program is “Films on L,” a showcase of short films from around the world.

“Therapy,” which is directed by Don Roos ( “Marley and Me”), is produced and distributed by Intelligent Life Prods. in collaboration with Team One Advertising for Lexus.

Social Media Evolution

The Evolution of the Social Media API

Posted using ShareThis

New Media Trajectory for Online Video

Story

Report: Online Video Fastest-Growing Medium In The History Of The World

Gavin O'Malley, May 29, 2009 07:45 AM

Having gone from zero to mass market globally in three short years, online video is the fastest-growing media platform in history, according to a new report from social media research consultancy Trendstream and research firm Lightspeed. In one week in January, 97 million Americans viewed a streaming clip online -- as many as are tuning into any major broadcast network -- according to a recent survey of 1,000 U.S. active Web users ages 16-65. What's more, with 72% of U.S. Web users watching clips online, Web video outstrips both blogging and social networking, and is now the leading "social-media platform." The "broadcast mode is dead," said Tom Smith, managing director of Trendstream. "Now is the time for co-creation, user distribution and a true democratization of video content." The report also notes the power of interactivity that online video affords. In January 2009, 39% of respondents shared a clip online, and a further 31.5% contributed to the mass of online media by uploading a clip themselves. Homemade content is by far the most popular content to upload, with 27% of those who uploaded a clip contributing material from this genre. Content from digital cameras is most likely to make it onto the net, as 48% of contributors used this medium to create their content. At 26% and 22%, respectively, home PCs and mobiles are the next-most popular choices for creating content. A full 82% of 16- and 17-year-olds watched video online, compared with 65% of those ages fifty-five to sixty four. Fifty-two percent of 16- and 17-year-olds shared video clips online, compared with 29% of 55- to 64-year-olds, and a further 46% and 21% respectively uploaded a video. With users from across the age spectrum watching, creating and distributing video content online, the so-called "digital divide" is not as wide as might be expected, according to Trendstream. It is also clear that the online video audience is far more sophisticated and influential than was previously supposed with the heaviest viewers in the 25 to 34 age bracket. With 49 million active Web users -- 32% -- uploading content in January 2009, users of all ages now generate far more content than traditional broadcasters and collectively contribute the majority of video content to the Web. According to Trendstream, broadcasters who wish to engage with this highly influential and affluent group need to develop highly compelling, multi-platform content that can be accessed through multiple gateways including email, music sites, news sites, film sites, blogs and social networks.

New Media VC

May 28, 2009, 12:02 PM

Google Showcases New Communication and Collaboration Tool

By MIGUEL HELFT

Jens and Lars Rasmussen, the two brothers who created what would become Google Maps, have spent the last couple of years holed up in Google’s offices in Sydney, Australia, dreaming up a new tool for communicating over the Web. On Thursday, at a Google conference for developers in San Francisco, they showcased the fruits of their work: Google Wave.

Screen shot of Google Wave. 
Enlarge This Image

Google Wave is an application running in a Web browser that creates a shared online desktop where two or more users can interact easily. They can exchange messages like they would do in e-mail or instant messaging conversation. They can share and edit rich documents that include formatted text, images and graphics. They can also drag-and-drop simple applications called widgets into a Wave to, for example, play a game together. And they can save and publish any Wave resulting from their collaboration to the Web.

“We like to think that we invented some new here,” Lars Rasumussen said in an interview. “It is a communications and collaborations tool. We call it a Wave. It is equal measure document and conversation.”

Google Wave will not be available to the public until late in 2009. But the company is making it available to developers who attended the conference now, hoping they will build their own extensions, creating all sorts of new applications for the product.

For instance, Mr. Rasmussen said engineers at Google had developed a way for creating a Wave that keeps track of users’ Twitter messages. He said others could use it to have a single place where a user could keep track of different mail and instant messaging accounts. And he said workers inside companies could easily use Wave to collaborate and create new documents and also to interact with other applications.

“We are still discovering new ways in which this combination makes you more effective in communication,” Mr. Rasmussen said. “I can’t wait to see what developers are going to build.”

Much of Wave’s technology will be made available to others under an open source license, he said.

Mr. Rasmussen was more circumspect when it came to talking how Google would position Wave for consumers. He said that a rollout to the public was still months away.

For Google, Wave is not just an interesting new product, but an opportunity to showcase its message to software developers at the conference: Internet browsers have become powerful enough that they can be used as a platform to develop complex applications. The approach makes the computer desktop, where Microsoft has reigned supreme for more than a decade, far less central to the future of computing.

MAY 27, 2009, 11:25 PM

Best Buy Backs a Digital Media Venture Fund

By CLAIRE CAIN MILLER

Best Buy, the consumer electronics retailer, wants to finance the next hot digital media start-up.

Best Buy is supplying the capital for a new digital media investment fund that will be managed by Velocity Interactive Group, which also happens to be changing its name to Fuse Capital. The venture capital firm was founded by former comVentures partners along with Ross Levinsohn, the former head of digital for News Corp., and Jon Miller, the current head of digital for News Corp. (Technically, Mr. Levinsohn was president of Fox Interactive Media and Mr. Miller is chief digital officer, a role that News. Corp did not have before.)

Why would a big-box store get involved with digital start-ups? “We’re trying to change what the solutions are for our customers and change the direction of our company and get involved a lot more in what’s happening in digital entertainment as an active participant, rather than a passive participant,” said Michael Vitelli, executive vice president of customer operating groups at Best Buy.

Fuse Capital will invest the new fund, the size of which both parties refused to disclose, in digital media and communications start-ups, the same areas in which it has been investing its current, $300 million fund. It will look for start-ups that offer games, mobile applications, photo and music sharing, online video and personal media management, Mr. Levinsohn said.

Best Buy “sits sort of at the intersection of media and technology and for us, that seemed really interesting and something we can help them with and support them with,” Mr. Levinsohn said.

Best Buy has made other moves in digital media and mobile that might not be expected of a big-box retailer. In September, it bought Napster, the music streaming service, for $121 million. Mr. Vitelli said he can imagine making investments in companies that do similar things in video or gaming, for example.

Mr. Vitelli joined Best Buy five years ago, after two decades at Sony. He was given responsibility for creating Best Buy’s own hardware brands and Best Buy now sells its own Insignia lines of televisions, digital video recorders and the like. He said Best Buy’s move into digital media investing is similar. “We see the same opportunity in the digital media world, which is actually starting to explode,” he said.

Fuse Capital hopes to continue to partner with big corporations. In this instance, Fuse lends Best Buy its experience investing in tech start-ups and Best Buy lends Fuse the scale and connections of a huge consumer electronics retailer — from its 400 million customers to its 4,000 stores to its many relationships with consumer electronics companies.

Velocity’s name change to Fuse is not related to the Best Buy news. It discovered that another company had registered the name Velocity a few weeks before it had, so the partners decided to borrow the name Fuse from Fuse+Media, a Velocity subsidiary for media investments in India.

Nielsen Online Report - Internet TV Growth

YOUTUBE MAINTAINS TOP RANKING BY TOTAL STREAMS AND HULU GROWS 490

PERCENT YEAR-OVER-YEAR, ACCORDING TO NIELSEN ONLINE

Unique Viewers 35+ Enjoy Long-Form Video, Drive Growth to Hulu

New York, NY – May 14, 2009 – Nielsen Online, a division of The Nielsen Company, today

announced that YouTube continued to rank as the No. 1 video Web brand with 5.5 billion total

streams in April. Meanwhile, Hulu continued its explosive growth trajectory, increasing 490

percent in total streams year-over-year, from 63.2 million in April 2008 to 373.3 million in April

2009, making it the fastest growing brand among the top 10 (see Table 1).

“Historically short form, clip-length video has ruled streaming on the Web—as demonstrated by

YouTube’s top spot month after month. Hulu, along with pure-play providers like Veoh and the TV

networks, have spent the past two years trying to convince consumers that the Internet can be a

good place to watch full length programming as well. April’s strong showings of Hulu, Fox, and

ABC suggest that consumers are beginning to listen,” said Jon Gibs, vice president, media &

analytics, Nielsen Online.

Table 1: Top Online Video Brands Ranked by Total Streams for April 2009, Including Their

Month-over-Month and Year-over-Year Growth (U.S., Home and Work)

Video Brand

Apr-09 Total

Streams

(000)

Month-over-

Month %

Change

Year-over-

Year %

Change

Share

of

Streams

Overall Online Video Usage 9,452,996 -2.3% 24.2% 100.0%

YouTube 5,490,204 0.2% 35.5% 58.1%

Hulu 373,290 7.1% 490.4% 3.9%

Yahoo! 203,628 -12.2% -8.1% 2.2%

Fox Interactive Media 201,362 -3.0% -38.8% 2.1%

Nickelodeon Kids and Family

Network 175,917 -10.3% 15.9% 1.9%

MSN/Windows Live 164,422 -2.7% 9.8% 1.7%

ABC.COM 148,830 -15.9% 144.8% 1.6%

MTV Networks Music 143,356 15.7% 359.6% 1.5%

Turner Sports and 130,559 -5.1% 60.0% 1.4%

1

Entertainment Digital

Network

CNN Digital Network 112,469 8.7% 32.7% 1.2%

Source: Nielsen VideoCensus

Note: Includes progressive downloads and excludes video advertising.

Time Spent Viewing per Viewer Grows 29 Percent among People 35-49

In April 2009, people between the ages of 35 and 49, were the fastest growing demographic in

time spent viewing per viewer, increasing 29 percent during the past six months. This was 13

percentage points higher than the growth of time spent viewing per viewer for the overall market,

which increased 16 percent over the same 6-month period (see Table 2).

“Despite what many believe, it is not the young, tech-savvy, early-adopters who are attracted to

long-form video. In fact, we see that it is the older crowd, viewers 35+, who gravitate toward longform

video, with sites like Hulu acting as a perfect example of this,” said Gibs. “And advertisers

are paying attention. They see long-form video sites like Hulu as a safe bet for online advertising,

recognizing that their key audiences are there and more willing to sit through an online

advertisement while watching a favorite show, much as they do with the TV.”

Table 2: Growth in Time Spent Viewing per Viewer over the Past 6-Months by Demographic

Group (U.S., Home and Work)

Nov-08 Time per

Viewer (min)

Apr-09 Time per Viewer

(min) % Change Over 6 Months

Total 178 206 16%

Male 209 249 19%

Female 151 170 12%

2 - 11 113 116 3%

12 - 17 178 190 7%

18 - 24 303 349 15%

25 - 34 253 296 17%

35 - 49 187 243 29%

50 - 64 122 139 14%

65+ 67 81 21%

Source: Nielsen VideoCensus

In April 2009, three of the top five sites—Hulu, ABC.com and NBC.com—ranked by time spent

viewing among people 35 to 49 were sites with long-form video. Compared to six months ago,

only one of the top five was a long-form video viewing destination.

Table 3: Top 5 Sites for People Aged 35-49 Ranked by Time Spent Viewing for April 2009

and November 2008 (U.S., Home and Work)

Nov-08 Apr-09

Site Time Spent Viewing (000) Site Time Spent Viewing (000)

YouTube 2,740,328 YouTube 2,983,430

Hulu 372,407 Hulu 933,252

Megavideo 225,325 ABC.COM 313,483

CNN Digital Network 153,705 NBC.com 215,302

Nickelodeon Kids and Family

Network 143,086

CNN Digital

Network 187,471

Source: Nielsen VideoCensus

2

Diving Deeper: Time Spent Viewing on Hulu Increases 119 Percent, Driven by People 35+

Since its inception as a joint-venture between NBC and News Corp, Hulu has experienced

meteoric growth in all aspects of video viewing, especially in time spent. Total time spent viewing

increased 119 percent between November 2008 and April 2009. As more people frequent Hulu

and stream more videos, more time is also spent watching these videos. Time spent viewing per

viewer increased 120 percent, from 147 minutes in November 2008 to 325 minutes in April 2009.

Helping to drive this impressive growth for Hulu are unique viewers between 35 and 49, who in

April represented 30 percent of total Hulu viewers. They also spent more time on the site than

any other age group, with an average of 416 minutes spent viewing per viewer during the month,

10 percent more than any other demographic group on Hulu. During the past six months, time

spent per viewer for the 35 to 49 demographic group has increased 154 percent (see Table 4).

“Hulu’s growth in time spent viewing illustrates that they are setting the pace in the video market.

Although this growth has a lot to do with a good interface and excellent programming, Hulu’s

aggressive marketing campaign, starting with their first TV ad at the Superbowl, seems to have

given them a bounce that they haven’t yet fallen from,” noted Gibs.

Table 4: Growth in Time Spent Viewing per Viewer over the Past 6-Months for Hulu (U.S.,

Home and Work)

Age Group

Nov-08 Time per

Viewer (min)

Apr-09 Time per Viewer

(min) % Change Over 6 Months

2 - 11 50 122 143%

12 - 17 78 129 65%

18 - 24 151 379 151%

25 - 34 237 353 49%

35 - 49 164 416 154%

50 - 64 100 284 184%

65+ 27 151 232%

Source: Nielsen VideoCensus

VideoCensus Methodology and Metrics:

Nielsen Online’s VideoCensus combines patented panel and census research methodologies to

provide an accurate count of viewing activity and engagement along with in-depth demographic

reporting. Online video viewing is tracked according to video player, which can be used on site or

embedded elsewhere on the Web. For example, if a “Saturday Night Live” clip from NBC.com is

embedded on a personal blog, that video would be attributed to NBC because of the NBC video

player.

A unique viewer is anyone who viewed a full episode, part of an episode or a program clip during

the month. A stream is a program segment. VideoCensus measurement does not include video

advertising.

Professional Quality Content will win in Online Video Monetization

When Will Hulu Catch YouTube? It Already Has

by Peter Kafka
Posted on November 17, 2008 at 10:07 AM PT

PrintBuzz up!Share

Lots of chatter today about comments from research outfit Screen Digest, which suggest that video upstart Hulu will catch up to YouTube next year. The U.K.-based company says that next year, both will generate $180 million in U.S. revenue.

But I had questions about the data, reported by the Financial Times. So I called Arash Amel, the Screen Digest analyst who provided the numbers. Glad I did, because Amel’s analysis is actually much more provocative: He believes Hulu is already making more money than YouTube.

The short explanation: The numbers that the FT reported are gross revenue–total money received from advertisers–not net revenue, what’s left over after paying for the video.

If you’re talking about net revenue, Amel says, then Hulu, a joint venture between News Corp.’s Fox (NWS) and GE’s NBC (GE), is already making a small profit–perhaps $12 million a year. And he believes that Google’s (GOOG) YouTube is still losing money every year. (News Corp. is the owner of Dow Jones and this Web site.)

(UPDATE: I shouldn’t have used the word “profit”, and Amel didn’t when he discussed this with me. My former boss Henry Blodgetcorrectly points out that what Amel is saying is that Hulu is generating a modest gross profit, not an operating profit. Henry is less than impressed with this. But it’s better than what YouTube can claim.)

The longer explanation: Amel’s model assumes that while Hulu is showing far fewer video streams to many fewer people than Google, it is able to sell ads on most of them–perhaps 80 percent of all streams have a paying advertiser, he thinks. Google, meanwhile, is thought to be able to sell ads on just three percent to four percent of its views.

Just as important, but not widely discussed: Amel believes that YouTube’s costs are much more significant than most observers guess. That’s because YouTube isn’t just paying massive bandwidth and hosting costs for all those clips. It’s also paying out huge licensing and content fees to copyright owners like music labels.

Amel thinks YouTube is paying more for those fees than it does for infrastructure/bandwidth. This dovetails with what an industry source told me last week.

Amel won’t be publishing a full report on his analysis until next week. But he was able to break down his numbers for me over the phone. There is one obvious problem here. While he’s worked out a set of fairly detailed numbers for Hulu, he can’t get any more specific with Google other than that it’s “loss-making.”

Hulu:

2008 gross revenue for US: $70 million

Net margin (factors in infrastructure costs and payments to affiliates and content owners): 15 percent to 18 percent

Net revenue: $10.5 million to $12.6 million

YouTube:

2008 gross revenue for U.S.: $114 million

Net margin: None

Net revenue: None

But wait a minute. These are U.S.-only numbers. And YouTube generates a huge amount of its traffic from non-U.S. surfers, while Hulu is only available in the U.S. Doesn’t this help YouTube’s case?

Nope. It actually hurts it. That’s because YouTube’s costs (for both infrastructure and licensing/content fees) don’t go away when it shows a stream to a viewer in, say, Spain. But the potential for generating ad revenue shrinks significantly.

Big picture: YouTube is the world’s dominant video site, and that’s worth a lot–once Google figures out how to sell more ads against more of its content, for more money. In the old go-go growth days, there wasn’t a lot of pressure on the site to do that. Now there is. And Hulu, designed primarily as a bargaining chip for the big networks, who were afraid of getting crushed by Google, has become a most pleasant surprise: A money maker.

YouTube vs Hulu - which is the future of online video?

May 10th, 2009 | by Ben Parr16 Comments

Since its inception in 2005, YouTube has opened up online video to the masses. Its embedding and sharing features helped make thousands of viral of videos. Today, YouTube has over 100 million unique viewers every month for everything from cute kittens to university lectures.

Innovation and change in the social media space occurs lightning fast, though. YouTube, once without rival, is feeling the heat from new competitors, primarily the fast-growing Hulu. Other innovations, like live streaming video, are also ratcheting up the online video stakes. So where exactly is online video headed? Let’s talk about the YouTube and Hulu models.

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The YouTube model

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In the past, there was no leading source of user-generated online video, and even premium content was scarce. The freedom to upload (almost) any video on YouTube is YouTube’s calling card. It made it possible for everyone from the proud parent to the aspiring director to shoot a video, put it up, and become the next viral sensation.

It’s still the largest of all the video websites, with around 80 million U.S. visitors alone, and it has been pushing out great innovations like HD video and in-video captioning.

However, it still struggles with monetization. It’s simply not making enough to cover the bandwidth costs and make a profit - one report claims that the site will lose $470 million this year. If Google cannot find a way to make YouTube a consistent profit-generator, the model may not be sustainable long term.

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The Hulu model

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Hulu can be described in two words: premium content. The service is tiny by comparison to YouTube - it has 2.6% of the US online video market, compared to Google and YouTube’s 40.9%. And yet it’s much more successful when it comes to revenue per viewer: in a somewhat disputed report, one analyst even dared to predict that Hulu’s 2009 revenues would exceed YouTube’s.

Realizing that Hulu might have the better business model, YouTube is attempting to bolt on premium content, with one major issue…the TV shows and other professional clips added to the site are outdated and undesirable.

Hulu’s biggest problem? It’s still only in the U.S. This isn’t some minor or unimportant detail: Hulu is excluding somewhere around 95% of the world’s population from its videos. But even if it opens its international gates, can Hulu make a real push for YouTube’s market share? And can it monetize internationally?

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Other video innovations

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YouTube and Hulu aren’t the only major players though. There are services like Vimeo and Viddler that offer deeper customization. However, the innovation catching a lot of people’s eyes is live video. Tools likeUstream, Mogulus, Justin.tv, and Stickam have created a new level of user interaction. Celebrities use these services to connect with friends while soldiers are free to talk to their families in real-time.

As our demand for real-time increases, will our demand for live video increase as well?

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Which model will be the future of video?

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So what is going to happen? Will YouTube solve the revenue issue, or will Hulu define the model for a successful online video site? Is there enough room for all of this video? And where does live video come into the picture?

We’ve given you an overview of the big picture, but we want your thoughts on the matter. Is YouTube, Hulu, or another model going to pave the way for online video’s future?