Hulu Plus Should Drop the In-Stream Ads Immediately

I activated my 7-day Hulu Plus trial last evening and spent some time with the new subscription service on my Mac. The overall navigation and video quality was excellent, consistent with the high standards Hulu has set from the beginning on Hulu.com. I particularly liked how Hulu has chosen to display the many episodes of past seasons. They are listed by title in reverse chronological order, with run-time, original airdate, length, and the ability to add to your queue well-displayed. For shows with multiple past seasons Hulu Plus lets you drop-down to see particular seasons as well.

Net, net, though I haven't spent a ton of time with it, my first impressions are generally positive, except for one major, major thing: Hulu Plus programs carry the same full in-stream ad load as programs on Hulu.com. In my "7 Quick Reactions" post earlier this week, I called this out as both a big surprise, and also a key detraction from the service. Now that I've experienced the ads, I can say even more emphatically that Hulu Plus must relinquish the ads.

The biggest problem with the ads is that they are discordant with consumer expectations for a paid subscription service. The right comparables for Hulu Plus should be premium cable channels like HBO, Showtime and Epix, and a DVD/streaming service like Netflix. In the former, you'll routinely see cross-promotions for other programs, but you'll never see a commercial break. In the latter, aside from previews, you never see any ads at all.

It's tempting to say Hulu is more like a basic cable network (e.g. USA, ESPN, MTV) which do have ads. But that would be a faulty comparison, for at least 3 reasons: (1) cable subscribers have experienced a dichotomy between basic (with ads) and premium (no ads) channels from the first days of cable, so their expectations were set early on, (2) many viewers now watch via DVR and improve their experience by skipping the ads anyway (something that can't be done with Hulu Plus and (3) a lot of basic cable is first-run programming, not past episodes like on Hulu Plus; viewers intuitively get that "new is more valuable than old" and so ads on basic cable, as with broadcast, make sense.

In his interview with AllThingsD earlier this week, Hulu CEO Jason Kilar said that Hulu thoroughly researched potential reactions to including ads. He said Hulu asked consumers "If you had a choice between having it be with no ads and at a higher price, (versus) having it with a relatively modest level of advertising but lower priced, which would you prefer?" According to Jason, they dramatically chose, 'in large numbers,' the latter. That finding is unsurprising, but also it doesn't strike me particularly relevant either as consumers will almost always prefer something that costs less. To me, more pertinent questions would be: "Do you think it's appropriate to have ads included in a $10/mo subscription service that mainly offers library broadcast network content?" and "Would you subscribe to such a service at this price and with ads?"

Research aside, from a common sense point of view, I can tell you that if I had been a new paying Hulu Plus subscriber, when I fired up that Ally McBeal finale episode last night and was first greeted with a 35-second Sprint Evo ad (followed by 4 more ad pods of 15 and 30 seconds each and concluding with a pitch to buy the episode), I would have been disappointed.



There's a certain irony in Hulu's decision to include ads in Hulu Plus, because it has always been so focused on the user experience, and included relatively few ads in its free site. I've been a vocal critic of Hulu's "ad-lite" approach, both because it conditions viewers to expect that online delivery means few ads, and also because it undermined the networks' P&Ls as convergence devices start to bring online programs to the big screen (lately I've been encouraged that networks plan to double the ad load in their online programs).

It's also worth noting that advertising is a scale business. If you don't have a lot of viewership and inventory, you'll make very little money. Given that Hulu's 40 million+ monthly viewers of its free programs will swamp the number of Hulu Plus subscribers for as long as the eye can see, incremental viewership and ad revenue from Hulu Plus will be a rounding error in the larger scheme of things. That leaves me thinking that Hulu is foolishly trying to "gild the lily" with ads in Hulu Plus.  

Maybe I'm missing something big, but my feeling is that Hulu should nix the in-stream ads immediately. There's still much uncertainty about whether the fundamental value proposition of Hulu Plus - online access to a library of broadcast network programs for $10/mo - is strong enough itself to gain traction. We'll only know the answer over time. Meanwhile, the last thing Hulu should be doing is throwing up an obvious roadblock to adoption and ongoing satisfaction by including ads.

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Categories: Advertising, Aggregators

Topics: Hulu Plus