Is Hulu planning an IPO? It’s starting to sound like it.
In March, the company announced it was profitable on revenues that could reach $250 million in 2010.
We also learned that Hulu is up to 200 people, 50 or 60 of whom sell ads, and that Hulu has 226 content partners. Jason also says Hulu Plus subscriptions are ahead of where he thought they’d be.
So, What do Hulu’s financials look like? Here our estimates, based on prior conversations with sources and Hulu’s revenue announcement in March:
- Hulu revenues reached $100 million in 2009.
- Revenues will hit $200 million to $250 million in 2010.
- Of that gross revenue, one source with knowledge of the company’s financials estimates that Hulu will keep about 35%-40%.
- A source familiar with Hulu’s economics says profitability on ~$70 million of annual net revenue is perfectly reasonable.
We’ve always appreciated Hulu’s slick product, but it wasn’t until April of this year that we ate some crow and admitted that Hulu’s business might not be so bad either. On April 1, Henry Blodget explained:
When Hulu launched 2+ years ago, we praised the product and panned the business model.
We had no doubt that users would flock to Hulu’s excellent content and user-friendly site, but we didn’t think the company would make money.
Because Hulu’s revenue-sharing agreements with its content partners called for it to pass at least 70% of the revenue back to the partners, as well as another 10% to distribution sites. Given the high cost of streaming and bandwidth in those days, as well as the sales and administration costs Hulu had to bear, we thought those economics just wouldn’t work.
We also thought that Hulu’s ownership structure was basically unworkable: Huge companies that hated each other all using the company to further their own competitive ends, renegotiating deals at Hulu’s expense, etc.
So what has happened?
First, Hulu has amassed a big audience, as we expected it might. Second, Hulu’s gross revenue has come in strong, which was also not a surprise. Third, Hulu’s owners have, for the most part, behaved themselves and let Hulu build a business (not without some serious issues for the future, which we’ll discuss in a follow-on post). Fourth, bandwidth costs have dropped rapidly. Fifth, there was one key element of Hulu’s economics that we were not aware of that has helped the company control costs.
Here are Hulu’s current economics, as best we can determine them:
In today’s NYT, Hulu CEO Jason Kilar said Hulu has been profitable for the past two quarters, generated $100 million of revenue in 2009, and will generate $100 million of revenue in the first half of 2010. That puts the company on track to do $200-$250 million of gross revenue this year.
Of that gross revenue, one source with knowledge of the company’s financials estimates that Hulu will keep about 35%-40%. (Hulu’s deals with the big content providers yield a 20%-30% of net revenue split to Hulu, but the one-off deals with other content providers sometimes go as high as 50%-50%. So the aggregate net revenue is about 35% of the gross, or $70-$100 million in 2010.)
On the cost side, Hulu has a couple of hundred employees, bandwidth and tech costs, and sales costs and commissions on the revenue that its sales force sells. The one element of Hulu’s network deals we did not appreciate at the outset is that, if a network partner sells an ad, Hulu gets a 30% cut and does not cover ANY of the costs, including the bandwidth costs. This means that on perhaps 50% of the company’s revenue, Hulu’s 30% split is almost pure profit. This helps the company’s profitability significantly.
Rolling up all the costs, a source familiar with Hulu’s economics says profitability on ~$70 million of annual net revenue is perfectly reasonable.
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