3 Big Questions About Hulu's Future

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Today's big news is that Hulu, the online video site created by News Corp, Disney, and NBC, is preparing for an IPO this fall.

The New York Times says that insiders value the company at $2 billion, although we don't know how that valuation was made. All we really know is that the company might generate $200 million in revenue this year, most of which goes to the content partners right off the top. We have no idea how much profit Hulu generates. We have no idea how well Hulu's forthcoming paid subscription service will do.

The problems of valuing [pdf] almost any young technology company are well-known. And in this situation, we have even less information to go on than normal. What we do know is that any kind of large valuation for Hulu assumes that certain things are or will be true. Here are three big questions that occurred to us.

  • In a reverse of print-digital advertising divide for magazines and newspapers, Hulu commands higher ad rates than broadcast or cable TV. The single-show, single-sponsor model has worked really well. People seem to remember the Hulu ads they watch, which makes advertisers happy. But as viewers watch more of their television online, will they become inured to Hulu's ads? If so, Hulu's CPM, the amount advertisers pay for 1,000 views, could drop.
  • As Jon Gruber points out, Hulu is "a brand new middleman in a world where middlemen are going away." There is no guarantee that the company can hold together the (rather fragile) coalition of companies who have gone in together on the venture. Viacom, for example, has pulled out of the partnership. Gruber doubts that the company will actually make it to a public stock offering.
  • But let's assume that Hulu does go public. Then, it'll be subject to the demands of investors, who may want to squeeze more gold out of the goose. One option would be to increase the number of commercials that people have to watch per show. If Hulu ups its per hour "ad load," will viewers bolt for other services?
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Alexis C. Madrigal

Alexis Madrigal is the deputy editor of TheAtlantic.com, where he also oversees the Technology Channel. He's the author of Powering the Dream: The History and Promise of Green Technology. More

The New York Observer has called Madrigal "for all intents and purposes, the perfect modern reporter." He co-founded Longshot magazine, a high-speed media experiment that garnered attention from The New York Times, The Wall Street Journal, and the BBC. While at Wired.com, he built Wired Science into one of the most popular blogs in the world. The site was nominated for best magazine blog by the MPA and best science Web site in the 2009 Webby Awards. He also co-founded Haiti ReWired, a groundbreaking community dedicated to the discussion of technology, infrastructure, and the future of Haiti.

He's spoken at Stanford, CalTech, Berkeley, SXSW, E3, and the National Renewable Energy Laboratory, and his writing was anthologized in Best Technology Writing 2010 (Yale University Press).

Madrigal is a visiting scholar at the University of California at Berkeley's Office for the History of Science and Technology. Born in Mexico City, he grew up in the exurbs north of Portland, Oregon, and now lives in Oakland.

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