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Online Video Venture Hulu Joins Game

Brian Deagon Wed Mar 12, 6:22 PM ET

Near 2 a.m. Wednesday, some 35 Hulu.com employees in their Los Angeles offices took a group photo to toast the launch of their video site, which already offers 250 TV shows and 100 full-length movies. ADVERTISEMENT

"Some of them had been up for 40 hours," said Jason Kilar, chief executive of Hulu, a joint venture of General Electric's (NYSE:GE - News) NBC Universal and News Corp.'s (NYSE:NWS - News) Fox network. "It's like having a baby. You are sleep-deprived, and then experience tremendous elation when you see it come into the world."

Hulu.com was delivered after 18 weeks of testing, one more newborn in a very-crowded nursery.

The big Hollywood studios and TV networks over the past two years have pushed all manners of TV shows and movies onto the Web. Hulu arguably is the most ambitious in that it got two vicious competitors -- NBC and Fox -- to work cooperatively in a revenue-sharing business that will be operated independently from either of them.

Since the project was unveiled last year, the venture has inked pacts with more than 50 broadcast networks, cable networks, movie studios and Web content providers to contribute to the site. Partners that have agreed to host some Hulu content on their own Web sites include Yahoo (NasdaqGS:YHOO - News), Microsoft's (NasdaqGS:MSFT - News) MSN, Time Warner's (NYSE:TWX - News) AOL, MySpace and Comcast's (NasdaqGS:CMCSA - News) Fancast.com site.

"It's encouraging that more and more holders of copyrighted content are moving their products online," said Dennis Miller, general partner at venture capital firm Spark Capital. Spark has invested in this field, but is not a Hulu investor.

Hulu's launch will increase the number of consumers viewing video online, and get more advertisers into this market, Miller says.

The producers of TV shows and movies took a lesson from the music industry, which has lost billions of dollars in music sales due to illegal copying and downloading. Video businesses also have lost billions to piracy, but they moved much faster than the music industry in deciding to play in the online content game rather than fight pirates with continuous lawsuits.

Hulu is offering all its content for free, but viewers will be routinely exposed to advertising. Hulu advertisers include Best Buy (NYSE:BBY - News), General Motors (NYSE:GM - News), Intel (NasdaqGS:INTC - News), Nissan (NasdaqCM:NSANY - News), State Farm, Unilever (NYSE:UL - News) and Chili's. Ad revenue will be shared among the content providers and Web sites that carry Hulu's content.

Miller, whose firm is an investor in Veoh, the largest of the independent video Web sites, questions Hulu's model of sharing revenue among so many competitors.

"It's a question of how big the site can get and how they will monetize it in a way that will have a meaningful impact," Miller said. "There won't be room for 10 or 15 significant players all trying to be super aggregators of video, which is why you're starting to see some (online video) players fall out."

Among the largest providers of video content are Google (NasdaqGS:GOOG - News), which owns YouTube; Fox Interactive Media, Yahoo, Disney's ABC, Microsoft, Comcast, CBS (NYSE:CBS - News), ESPN and CNN.

Also, Viacom (NYSE:VIA - News) and CBS are partners in Joost.com, which offers more than 500 separate channels of viewing, a spokesperson said.

The number of visits to Joost, however, has fallen since October, according to Web analytics firm Compete.

Joost is an example of how difficult it can be to get consumers to return time and again in a highly competitive market, Miller says.

"I think Joost is over," he said. "It's a business in search of a market."

A spokesperson said Joost executives were not available to comment.

Kilar disagrees with critics who say Hulu's split of ad revenue won't be enough to sustain the company.

"It's deja vu for me," said Kilar, who joined Hulu after almost 10 years as an executive at Amazon.com (NasdaqGS:AMZN - News). "We are a digital retailer of sorts that connects great content with an audience. After Amazon, I have a lot of experience working with small (profit) margins but a large market."