Hulu Wins Back Viacom, Improves Ad Monetization

Hulu signed a new content partnership with Viacom that will bring the entertainment giant’s programs back to web video viewers – but much of it will be behind Hulu’s new subscription pay wall.

Beginning immediately, The Daily Show and The Colbert Report will be available for free viewing the morning after they originally air.

A selection of other current programming from MTV, Comedy Central, VH1, TV Land, BET and other Viacom channel brands will be added to Hulu Plus, becoming available 21 days after their on-air premiere, and all episodes will remain on the service through the end of their respective seasons.

Hulu Plus will add 2,000 or so more shows from Viacom’s library in the coming weeks, the companies said.

Hulu lost the two marquee shows, along with the rest of Viacom’s content, in March 2010, when the two companies failed to negotiate an extension of the original two-year contract.

While its viewership declined somewhat over the course of last year, ad volume increased.

According to comScore Video Metrix, 172 million U.S. Internet users watched online video content in December for an average of 14.6 hours per viewer. Of the top 10 U.S. properties, Hulu was last, with not quite 25.5 million viewers, compared to top-ranking Google, with 144.7 million and Viacom Digital, ranking fifth on the list with 45.8 million viewers.

Nevertheless, Hulu delivered the highest frequency of video ads to its viewers with an average of 47.1 over the course of the month.

Although financial terms of the deal with Viacom were not disclosed, Hulu evidently sweetened the pot quite a bit.

In a blog post announcing the content partnership, Hulu CEO Jason Kilar said Hulu’s monetization had increased in Q4 2010 to $0.185 per stream per half-hour episode, compared to $0.216 for broadcast TV; $0.097 for broadcast watched on DVR; $0.106 for cable; and $0.048 for cable TV watched on DVR. The calculations were based on data from Media Dynamics and Nielsen.

Meanwhile, he said that Hulu’s $7.99 per-month Hulu Plus subscription services will pass 1 million users in 2011, with a run rate of more than $200 million by this fall. This allows the company to pay content owners more per-user per-month than anyone else. Hulu did not make executives available for comment.

Viacom Chief Executive Philippe Dauman told the Wall Street Journal that his company will share in both ad revenue and subscription fees. Viacom executives were not available for comment.

The agreement is happy news for Hulu, and also for Viacom, which today reported a 12 percent drop in earnings year-over-year, in part because of declining DVD sales. However, there could be more contention to come.

Last week, the WSJ reported that Hulu is considering a new content streaming service similar to the bundles of channels now sold by cable and satellite operators, something Kilar alluded to in his blog post.

He wrote, “Content owners will bundle their content to the degree customers will respond, simply because it is in the content owners’ economic interest to do so. If enough customers refuse to purchase their bundles, then the bundles will either be reduced in price/scope (possible) or dismantled (far less likely). Customers will ultimately make the decisions here.”

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