No one likes ads. Hulu knows that. (Netflix knows it too, and it's sticking with an ad-free business plan.) But according to Hulu CEO Jason Kilar, some kind of commercial is an inevitable part of the TV viewing future. That’s why the online video service is trying to revolutionize the TV advertising experience, and maybe even turn viewers into fans. At GigaOm’s New TeeVee Live conference today, Hulu CEO Jason Kilar showed off three new ad strategies Hulu is rolling out. Whether viewers will love them remains to be seen. But they may well presage the direction TV advertising is going.
First, some background. According to Kilar, advertising accounts for 41 cents of every dollar made by premium content. (The rest is made up by subscriptions and transactions, such as DVD sales.) Services like Hulu could create ad-free versions, of course, if customers were willing to pay sufficiently high fees to make up for the lost revenue. But Kilar says surveys of users have shown that people would rather watch ad-supported services than pay the higher rates. That's why even Hulu Plus, the company's new premium service now in beta, includes ads.
Kilar says Hulu's goal is to create a service that users, advertisers, and content owners "unabashedly love." For advertising, he says, the key is to make them a good an experience for viewers (by not annoying them with ads for products they're not interested in), delivering impact for advertisers (by putting more of their ads in front people who are likely to be customers and fewer in front of peple who are not), and generating the necessary revenue for content owners. "Advertising is going to play a very big role the future of TV," Kilar said. "Any scenario about the future of television that doesn’t talk about advertising is missing a big part of the story."
Among the new strategies Hulu is introducing:
Let viewers trade out ads
On Pandora, you can click the Next button if you don’t like a particular song and wnat to move on to another. Hulu is going to implement something similar. While one ad is showing, Hulu will display three other options, as in the picture below. If you don’t like the one in front of you, you can choose one of the others. That's a better experience for users, Kilar says. As for the advertisers, the first brand doesn’t have to pay for that impression. Only the second brand pays—and they actually pay a higher rate, because the user chose them. That, in turn, generates more money for the content owner.
Figure out what the viewer will like, even when you don’t know who they are
Historically, advertising has been a blunt instrument. Desperate Housewives is a woman’s show. Most of the ads are going to be for laundry detergent and beauty aids. But a not insignificant portion of the audience is guys. (According to Kilar, the figure is 37%.) So why put an ad for a woman’s hair product in front of a guy? Hulu can switch out ads when a user is logged in. They know whether you’re a man or a woman. But what about when you're not logged in or registered, and therefore they don't know what you are?
Hulu’s engineers came up with a method of comparing an unknown user’s viewing history with the histories of registered users in order to create a profile of who that unknown person is. Kilar said the formula is 99 percent accurate. Which means they can serve better ads to users, even when they don’t have any direct information about who that person is.
If you liked this show, you might also like this one
One way for Hulu to increase revenue is to serve up better ads. Another is simply to get you to watch more shows. Hulu is going to go beyond simply using a recommendation engine to let viewers know about other shows they might enjoy. Now, when you’ve finished watching one show, Hulu will put a message in front of you, like the one at the top of this post, that will let you know about another show you might enjoy. For example, a user who just watched an episode of NBC’s Community would see a message letting them know about a British comedy called Peep Show that other viewers also liked. The message gives the user the option to view the show immediately or to bookmark it for later. According to Kilar, about 10 percent of users who see this message either watch the recommended show or bookmark it—blowing away the one percent reponse rate which is considered success on the Internet.