What does that mean in terms of gross ad sales for the NBC U – News Corp. JV? Not much. And net revenue? Even less.
We estimate Hulu will sell between $45 million and $90 million of advertising during its first 12 months — April 2008 through March 2009. By the time it pays off its content partners, it will book between $12.5 million and $25 million in net revenue. (Which isn’t bad for a start-up, actually.)
How do we get there? Assuming Hulu grows a fairly conservative 10% month-to-month in its first year — it grew 20% from April to May, its first two full months of availability — Hulu will have served 1.8 billon TV and movie streams by next March. We’re assuming each stream results in at least one ad exposure, on average, but we’ll allow for the possibility each stream results in two . One exposure at $25 CPM, or cost per 1,000 impressions, is $45 million in ad sales; two exposures would double that to $90 million.
Why do we think Hulu viewers are exposed to just one ad per stream, on average? Because they’re not on the site long enough to see many more. In May, Hulu served 80 million video streams and 411 million total minutes of video, according to Nielsen’s VideoCensus, meaning each stream was 5.1 minutes in length, time in most cases for just one ad exposure. And according to ComScore, Hulu users spent an average of 6.6 minutes on the site per visit in May.
Of course, it is possible Hulu is showing visitors more than one ad per stream. It’s also possible they are booking some revenue from banners and other sponsorships, such as the Honda-sponsored “collections” section. But those would be ancillary streams of income. Hulu’s core business is selling video ads that travel with the shows, either to partner distributors like MSN (MSFT) or AOL (TWX), or wherever viewers embed Hulu video, on their own sites or blogs.
On the low end, we estimate that Hulu.com will generate close to the revenue generated by, say NBC.com, which is said to generate “tens of millions” in revenue this year. On the high end, Hulu would net $90 million in gross ad sales — in the same league as some estimates for YouTube.
Key difference: Hulu keeps only 30% of the gross ad revenue from ads served on its own site, and 20% of gross revenue from ads served on distribution partners’ sites. A source tells us that Hulu nets the full 30% from the majority of ad impressions, so we’ll estimate that they’re keeping 28%, on average. That leaves Hulu with $12.5 to $25 million, against which it pays all of its costs, including the cost of streaming, infrastructure, marketing, and personnel.
As we’ve noted before, Hulu is a sexy Internet video service, but a thin-margin, tough business. Have we missed something? Are we lowballling Hulu? Leave us your thoughts in comments, via email to [email protected], or via our anonymous tips box.
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