[opendtv] News: Web Site's Formula for Success: TV Content With Fewer Ads

http://www.nytimes.com/2008/10/29/business/media/29adco.html?_r=1&th&emc=th&oref=slogin

Web Site's Formula for Success: TV Content With Fewer Ads

By BRIAN STELTER
Published: October 28, 2008
"THUMBS up" and "thumbs down" ratings for commercials. Choose-your-own-advertisement options before shows begin. Interactive games during advertising breaks.
In the last year these online advertising innovations have been popularized by Hulu, the online video Web site that will celebrate its first anniversary on Wednesday. For all that has been written about Hulu's easy-to-use, aesthetically pleasing interface, the advertising experience is equally important.
In the place of the long commercial pods that TV viewers have become accustomed to, only one ad is shown during each segment break on Hulu. Fewer ads make the ones on the site more memorable, Hulu executives say, allowing the site to charge higher prices for the ad units.
"The notion that less is more is absolutely playing out on Hulu," Jason Kilar, the chief executive of the site, said. "This is benefiting advertisers as much as it is benefiting users."
While Hulu was not the first site to serve up full-length television shows or create new advertising units, it now dominates the emerging market for ad-supported TV and movie streaming. It emerged in public beta form one year ago with 10 advertisers, made its official debut in March, and now counts more than 100 sponsors, from General Motors to Old Spice.
The site has grown steadily, providing 142 million streams to 6.3 million unique viewers in September, Nielsen Online reported last week. Hulu is now the sixth-most-popular online video brand in the United States, surpassing the online video networks operated by ESPN, CNN, MTV and Disney. (It ranks far below YouTube, which streams 20 times as many videos as any other brand in the United States, and behind sites owned by Yahoo, Fox, MSN and Nickelodeon.)
With a library of more than 1,000 television series and 400 feature-length films, Hulu attracts a wider audience than individual network Web sites or competitors like Veoh and Joost. Recently, the site's biggest hurdle has been a shortage of advertising amid a sudden increase in video viewing. The cause? "Tina Fey happened to do an unbelievably good impression of Sarah Palin," Mr. Kilar said, referring to the "Saturday Night Live" skits lampooning the Republican vice presidential nominee.
Buzz about the sketches drove millions to view them online. The first skit about Ms. Palin, on Sept. 13, was viewed 14.3 million times on Hulu and NBC.com and watched by 10.2 million on television. The second sketch, on Sept. 27, has been viewed 11.1 million times on the site after being watched by 7.9 million on TV. While the comparisons are inexact because online viewers could be watching more than once, "Saturday Night Streamed" may seem a more apt title for the show.
At the same time that "Saturday Night Live" helped spike Hulu's traffic, the fall premieres of many popular TV shows attracted more visitors. To match the advertising inventory to the rapid growth in video views, "we now have to go back out into the marketplace very quickly," Mr. Kilar said.
While the site, a joint venture of NBC Universal and News Corporation, is reportedly not yet profitable, it has won over many advertising executives. "I've been waiting for this for 10 years," Greg Smith, the chief operating officer of Neo@Ogilvy, an interactive agency of the Ogilvy Group, told Mr. Kilar during a product demonstration last November.
Mr. Smith now uses the site regularly. "Hulu takes TV content, which is the best long-form video content there is - the Web has yet to come up with something as good - and it just breaks it out of the tyranny of the schedule," he said in an interview.
In a customer survey commissioned by Hulu and conducted by Insight Express in July and August, 76 percent of nearly 18,000 respondents said that the site had the right amount of ads given the can't-be-beat cost of viewing (free). Just over 17 percent said there was less advertising than they expected. The survey also found a 22 percent bump in advertiser message association and a 28 percent increase in intent to purchase among users.
Mr. Kilar is an advocate of the fewer-ads approach. The half-hour comedies that are so popular on Hulu - "Family Guy" from Fox and "The Office" from NBC - have an average of eight minutes of commercial time on TV. On Hulu, where the sitcoms are especially popular, each show averages about two minutes of ads.
"We think that a modest amount of advertising is the right thing because that's going to drive atypical results for marketers," Mr. Kilar said. He said the site had no plans to increase the advertising load.
As effective as the ads may be, it must be hard to resist adding more. ABC, a unit of the Walt Disney Company, conducted focus groups with consumers last summer to gauge potential changes to the advertising load on its video Web site. The company is now analyzing the focus group findings, a spokeswoman said.
ABC.com was the first network Web site to introduce full-episode streaming in 2006. Research by ABC last January found that the one-ad-per-segment format resulted in a 54 percent ad recall rate. ABC and the other broadcast networks now make the recent episodes of almost every TV series available for streaming. NBC put the season premieres of "30 Rock" and other shows online a week before they were shown on TV this season.
Despite all the experimentation, it is still difficult to know exactly how many viewers are watching individual TV shows and movies online. Hulu ranks its most popular content, but unlike YouTube it doesn't show the view count for each video. Still, it is clear that millions of viewers are watching some shows online. The Season 3 premiere of "Heroes" in September was streamed 8.1 million times on Hulu and NBC.com, according to the network. (All online streams are not counted as equal, because on NBC.com each segment of an episode is counted as a stream, so a full episode could count as six streams. On Hulu, one episode equals one stream.)
It is easier to count the click-through rates for the video ads. On ABC.com, nearly one in four users participate when the ads are interactive, the network said. On Hulu, companies like Nissan have offered multiple versions of commercials for viewers to choose. The site is also experimenting with longer-form advertisements, sometimes letting users choose to watch a movie trailer in place of a 30-second spot.
Hiccups remain, Mr. Smith said, noting that technology sometimes limits innovation. "I'm still getting the same spot five times in an hourlong program sometimes," he said. "If I stop watching a movie and come back a few days later, it remembers where I stopped, which is great, but I wish it would remember which spots I was exposed to."
In a glimpse of the future of ad feedback, Hulu users are encouraged to click buttons indicating whether they like or dislike each ad they see. "As we collect more and more data, we can personalize the ad experience for you," Mr. Kilar said. 


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