-- Hulu increases content spending to $500M for 2012
-- Plans to release more original content
-- Only charging advertisers for fully-watched advertisements
(Updates to add details in third and fifth paragraphs.)
By William Launder
Television streaming service Hulu will ramp up its spending to create and acquire content to $500 million this year, a 67% increase, Chief Executive Jason Kilar said Tuesday.
The increase in content spending underlines Hulu's efforts to gain scale and compete for advertising dollars with television broadcasters and cable networks, since launching the service four years ago as an online startup.
The service has grown to 2 million subscribers, from 1.5 million subscribers at the start of the year, Kilar told participants at an advertising industry conference Tuesday. Hulu doesn't break out its full financial results publicly, but said its revenue increased 60% in 2011 to $420 million, driven by a mix of advertisements and subscriptions.
Hulu is owned by a group of investors including Walt Disney Co. (>> The Walt Disney Company), Comcast Corp. (CMCSK, CMCSA) Providence Equity Partners and News Corp. (NWS, NWSA), which also owns this newswire and The Wall Street Journal.
Skeptics of the service have questioned the company's business model, as big media companies, including Hulu's owners, seek out digital streaming deals with Hulu competitors like Amazon.com Inc. (>> Amazon.com, Inc.) and Netflix Inc. (>> Netflix, Inc.). Critics question if those new lucrative streaming deals could be compromised by Hulu, which offers content online for free or through an unlimited $7.99 a month subscription.
Kilar pointed to the fact that Hulu's media company owners depend on their television businesses as primary sources of profit, and said Hulu had a "very nuanced" relationship with its owners. The owners turned down an offer to sell the company last year.
Kilar said Hulu plans to introduce additional new shows later this week to compliment its existing set of content, which includes the reality show "A Day in the Life" and the sitcom "Battleground."
As an additional pitch to ad buyers considering how they allot budgets to traditional TV and online advertising, Kilar said Hulu now plans to charge advertisers only for pay-per-click placements when their ads are watched through completion.
"It was a big opportunity to push the ad business forward," Kilar told participants.
Speaking more broadly about the market for so-called "over-the-top" TV services, Kilar predicted that more digital content would become available for viewers as the funding for licensing agreements increases, similar to how the supply of DVD titles gradually increased as distributors sought out licensing deals for older titles.
"There are a couple of barriers, and all are getting knocked down," Kilar said.
Asked about the debate over "net neutrality," Kilar said cable distributors couldn't be faulted for seeking ways to capitalize on their products and technology, but he also pointed to the rules that prevent Internet service providers from deliberately blocking or slowing Web traffic as a fundamental principle that makes the Internet innovative.
In a Facebook posting Sunday, Netflix Inc. CEO Reed Hastings accused Comcast of trying to dodge Federal Communications Commission's net neutrality rules by exempting users of Microsoft Inc.'s (>> Microsoft Corporation) Xbox from typical data caps when they use Comcast's Xfinity service.
The FCC said late Monday that it "takes seriously any allegations of violations of our open Internet rules."
-By William Launder, Dow Jones Newswires; 212-416-3412; [email protected]
--Shalini Ramachandran contributed to this article.