Networks pulling ad inventory from Hulu

NBC among those looking to assert more control over assets

Advertisers are drawn to Hulu in part because the site is a popular place for fans to stream shows like NBC's "30 Rock" and "The Office." The trouble is, Hulu doesn't actually sell any inventory in those shows.

In fact, according to sources, Hulu isn't able to sell much inventory from NBC's primetime shows these days. That's because -- like a child grabbing for his favorite toy and shouting "Mine!" -- NBC has begun pulling back the maximum allowable amount of ad inventory within its shows on Hulu, as is such sister cable networks as USA and Bravo.

Hulu's other broadcast partners, ABC and Fox, are following suit, according to buyers familiar with Hulu's operations, though NBC has been the most aggressive as it looks to capitalize on heavy demand for video and assert more control over its assets. Hulu is a joint venture among NBC Universal, News Corp. and Disney.

The specifics of just how much inventory Hulu's network partners can retain is unclear. According to sources, networks can pull back 100% of ad inventory on two or three specified shows, which is what NBC does with "30 Rock" and "The Office." For other shows, the number is close to 85%.

According to a Hulu statement, "Hulu works with media partners to maximize sellout across Hulu. Hulu sells the majority of the inventory ... we are proud to say we have inventory to support both our business and the business of our content partners."

NBC Uni executives declined to comment; Fox and ABC execs were not available for comment at press time.

Having the broadcast nets pull back ad inventory is unlikely to put a major dent in Hulu's inventory volume. The site reached 27.1 million unique users who streamed nearly 1.4 billion videos in August, according to comScore.

However, Hulu's brand has been built as the place to go for current hit TV shows. The site regularly commands CPMs in the range of the broadcast networks' Web video plays -- sometimes between $40 and $50. If Hulu becomes a place where buyers can only access older shows and movies, its stature could change.

"Hulu has professional content, just not necessarily the marquee shows," said Andrea Kerr Redniss, a vp at Moxie Interactive. For example, an advertiser purchasing the comedy genre might be more likely to have its ads run in old episodes of "Arrested Development" than "Modern Family."

Theoretically, that shouldn't be an issue since Hulu is not permitted to sell specific series. Yet irked buyers say they still catch Hulu sales execs listing specific shows in their pitches, including shows like "30 Rock" that are managed completely by the networks.

"We constantly have to explain this to our clients," one buyer said. Many also complain that Hulu still has serious inventory management issues; sales execs will claim that a particular quarter is sold out, only to come back later in the quarter with more avails.

Not all digital buyers share these complaints. "Hulu still garners the most traffic, and our advertisers reach an engaged audience there regardless of what shows people are watching," said Adam Shlachter, MEC managing partner, digital investment. Plus, Hulu isn't just about network quality shows, said Vik Kathuria, managing partner, Mediacom Interaction, digital investment group, but about "buying demos and genres efficiently."

Yet for all its strengths, some media pundits have questioned where the future of Hulu lies, particularly as the number of options for TV lovers grows. Just last week, Netflix landed a deal with NBC to stream more of its shows on its Web streaming service, which is available on Xbox Live, the Nintendo Wii and the soon-to-launch Apple TV.

"Netflix is close to becoming the fourth largest cable company," Forrester analyst James McQuivey said.

Some have speculated that the free, ad-supported Hulu is not as useful as it once was for the broadcast networks and that they may look to limit their top primetime inventory to Hulu Plus -- something that non-Hulu participant CBS hinted at last week.

"Back when Hulu launched, Fox didn't have the digital acumen and NBC didn't have the shows," said veteran digital buyer Greg Smith, who recently left Neo@Ogilvy. "Now networks sales forces are more adept."

Moreover, many doubt the effectiveness of Hulu's business model. While some analysts have predicted Hulu will bring in $200 million this year, "advertising is not sufficient to cover the costs [of programming for Hulu]," said Jia Wu, an analyst for Strategy Analytics. "It's a good business, just not as good as the networks expected."

That's where Hulu Plus should help if it can get a decent number of subscribers. "Hulu Plus is a risk," said Chris Allen, a vp at Starcom USA. "But it's a great, innovative approach to video. People want access across devices."

Would the networks really walk away from Hulu before a potential $2 billion IPO, as some have speculated is in the offing? Perhaps NBC Uni will, once Comcast's purchase of the company is wrapped. But analysts doubt others would follow.

"Hulu is still in the experimental phase," said Scott Singer of the investment firm Bank Street. At the moment, "media companies want their content on as many distribution platforms as possible."

Added Jeremy Lockhorn, director of emerging media and video innovation at Razorfish: "It's going to be a fragmented space for a while."
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