Hulu Drops Ad Model, Yahoo Laps It Up

Multiple outlets are now reporting that Hulu is ditching its free, ad-supported video service in favor of spotlighting its subscription video-on-demand offering. But never fear, Yahoo is picking up the pieces. Through an expanded partnership with Hulu, Yahoo is launching a new video portal called Yahoo View that will feature freely available broadcast TV shows from ABC, NBC and FOX eight days after they initially air.

The news largely makes sense for Hulu LLC , which not only wants to compete more effectively with Netflix Inc. (Nasdaq: NFLX), but has also confirmed it will launch a skinny bundle that includes live TV content in 2017. Hulu has received financial support for this strategic business shift. Last week, Time Warner Inc. (NYSE: TWX) purchased a 10% stake in Hulu as part of deal that will also package the company's Turner-owned networks into Hulu's new streaming service. (See Time Warner Binges on Hulu.)

There is still one open question for Hulu, however, and that's whether it can succeed in straddling its roles as both programmer and distributor. Hulu may find that the operators it sells its content to don't take kindly to the fact that the company also promotes its own standalone skinny-bundle service as a competing product. (See Hulu: We'll Have Our Cake, Eat It Too.)

Regardless, that's a decision to which Hulu is already committed, and dropping the free, ad-supported service is logical in that context.

Want to know more about video and TV market trends? Check out our dedicated video services content channel here on Light Reading.

Yahoo Inc. (Nasdaq: YHOO), on the other hand, is more of a puzzle. The company is building yet another video portal that will require it to drive viewers to a single site in the hopes of picking up new advertising revenue. This at a time when Yahoo has struggled mightily as a consumer brand and the online video advertising market has continued to hit speed bumps.

According to Yahoo, the new portal will offer value by combining premium TV content with a "community-watching experience" that also lets viewers "browse photos and GIFS from the passionate Tumblr fandom."

But ironically, Yahoo's soon-to-be buyer Verizon Communications Inc. (NYSE: VZ) has not been successful so far with its own community-oriented, free online video service. Verizon CEO Lowell McAdam admitted in May that the video service Go90 may have been overhyped, and more recently, The Wall Street Journal reported that advertisers have been disappointed with consumer adoption. (See also Yahoo Signing Off in $4.83B Sale to Verizon and Verizon Backpedals on Go90.)

Meanwhile, online video advertisers continue to face troubles of their own. As Frost & Sullivan analyst Dan Rayburn opines, "When it comes to content that is supported by advertising, the market is completely broken, providing a crappy user experience. And it's been this way for years, with no signs of getting better. In fact, it's getting worse, much worse."

Rayburn points out that ad targeting and measurement tools are still poor, which means companies don't want to spend a lot for online video advertising. And with few advertisers on board, consumers end up seeing the same online commercials over and over and over again.

Despite the challenges, Yahoo still wants to make a go of its new video portal. The site -- View.yahoo.com -- is available in the US today, with mobile and web apps coming soon.

Hulu will be alerting its customers that its free service will be discontinuing over the next few days. Members will be offered free trials of the paid Hulu subscription service.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

jbtombes 8/9/2016 | 6:26:50 PM
dual revenue no more Jason Kilar always seemed to like the dual-revenue model (ads + subs). But that was then. Client-side ad insertion became a problem for Hulu, et al. That seems to be what Rayburn is pointing to. Skinny bundle would be no-ads, as well?
Joe Stanganelli 8/9/2016 | 6:19:19 AM
Yahoo programming Perhaps Yahoo will be more successful than its suitor (and soon to be parent), Verizon, in this regard.  I suspect this might especially be the case if (when?? considering market trends) the company gets into the original programming game.

Of course, if I was a cynic, I'd sardonically argue, "When was the last time Yahoo was a success at anything?"

Oh, wait.  I am kind of a cynic.

Hmmm...  Now I don't know how to feel!  ;)
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