When Jason Kilar, CEO of Hulu And the man driving Hulu Plus numbers, begins talking about the ‘years’ ahead for Hulu Plus, instead of the days, you know that it has a future after all. This week in a blog posted on the company’s web site he said, ‘As a young company, we’re excited about that number and we also expect it to grow aggressively in the years to come,” Kilar wrote.
The number he was talking about the $300 million that Hulu (not just Hulu Plus) would be generating for content businesses during 2011, but he may just as well have been speaking about the 1 million customers that he now says will take Hulu Plus by year end or the $500 million of revenues that the business (all of Hulu) is on track for during 2011.
But to us ‘the years to come’ was the most disturbing thought. At Faultline we had predicted disaster when Hulu launched, on the basis that each of the founders had their own web strategy to be going along with, and that as rivals, they would argue, fall out and close Hulu within a year. They didn’t. Also we felt it wasn’t a real business and continued to take that tack until Hulu Plus was launched, with an actual business model and reluctantly gave it our blessing with the headline ‘So it begins, a war for Middle Earth’ ‘ US OTT battle lines drawn.
These were of course the words of King Theoden of Rohan, in the Lord of the Rings trilogy, uttered as Saruman’s 10,000 evil Uruk-hai chant outside the gates of Helm’s Deep -which we felt pretty much summed up the move by Hulu to come out with a paid for Over The Top offer for what was initially $10, later cut to $8 a month.
But given that this launch was announced in July, was in preview until November when it has its price cut to $7.99 a month, it’s hardly had time to build 1 million customers. But that’s not quite what Kilar said.
‘We are on track to exceed 1 million Hulu Plus subscribers in 2011 (up from 0 in 2010). To our knowledge, this is the fastest start of any online video subscription service,’ goes his Blog.
This is, of course something of an invention ‘ if the aim is to be at 1 million by the end of 2011, and even if the sign ups were evenly spaced, which they won’t be, that’s roughly 71,000 a month starting the clock in November, which by now will have just reached 355,000. It’s hard to take a business seriously when it predicts first year sales based on sales for the first four or five months. If the numbers are ramping, it is likely that the actual number of subscribers are closer to 200,000 or 250,000 and Kilar is just anticipating uninterrupted momentum to the 1 million mark, which of course might not happen..
If you project revenues on JUST this number of subscribers that’s around $8 at 12 months each, which would come to $24 million. If the momentum continues, each additional month’s sign ups would only pay part of the year, so something substantially less than $96 million. So when Kilar talks about revenues of $500 million, he implies, but does not say, that this is coming out of subscriptions, but of course it’s not.
What he said was that the company is on pace to approach half a billion dollars in revenue in 2011 and that in Q1 revenue grew 90 percent over Q1 2010 and that Hulu did $263 million in revenue for all of 2010.
If it is on track for $500 million, that is, at most, $125 million in the first quarter (except that surely it is still growing radically and where subscription revenue is involved much of that revenue will be deferred throughout a 12 month subscription). But even if it is $125 million in the first quarter, then $60 million is the most that Q1 2010 could have been, and if it was, then 2010 quarterly progression is almost flat $60 million for each of three quarters followed by $83 million for the last quarter, would do it, with most of the last quarter’s upward movement being Hulu Plus subs cutting in.
Also when he talks about paying $300 million back to content suppliers it is mostly advertising revenues from Hulu, not subscribers, so far, and since it boasts about having content from 260 content companies, that averages just over $1 million each. Not so impressive after all.
Except given Faultline’s low expectations we are impressed. It’s way better than we expected, and its way better than anything that the studios or the record labels managed off their own efforts such as Movielink or Pressplay, which were aimed at preventing piracy by offering a better service. Hulu was a way of offering catch up broadcast TV programming instead of its being shown for free on YouTube, so much the same rationale was at its inception. But its execution really appears to have learned from the mistakes of the past, and the business has a CEO who is not frightened to do whatever it takes and there is a chance, just a chance, that the broadcasters behind it may not interfere as long as it continues to shadow the developments of Netflix, albeit from a long way behind. And as we said the confidence with which Kilar says ‘In the years to come,’ is the most impressive thing of all.
The only other figure we’d like to have is to know how much revenue collectively the owners would have had from the same content had it been on their existing web sites ‘ because that really tells us if the thing is internally seen as a success.