The Potential in Online Advertising Revenue
The difference between television advertising and online advertising revenue was $46.6 billion to $471 million in 2007.79 Hulu’s revenues in 2009 are expected to be $120 million, doubling 2008 numbers.80 The television industry should be impressed that Hulu is expected to match YouTube’s revenue in only its second year of existence and has a couple of reasons to expect revenues to continue to increase from online advertising and become a profitable business model. 81
Online video advertising is growing quickly. Even with overall ad spending expected to decline in 2009,82 online video advertising is expected to grow by 45%.83 $734 million was spent in 2008 on online video advertising, and in 2009 it is expected to surpass $1 billion.84 Even though some entertainment CEOs believe that they are trading “analog dollars for digital pennies,” Lisa Lapan describes that there may just be “a lag between consumers and advertisers in the move online.”85
Ad space online currently sells for less than ad space on television. Once its potential is utilized, however, online advertisement revenue and profitability should begin to rise and eventually surpass television ads. First, online ads give advertisers the unique ability to target consumers based on their Internet activities. Second, online ads give consumers the ability to connect instantaneously to a product’s website to learn more about it or to purchase it.86 This also gives advertisers instant feedback on how well their ads are working. Third, online ads give advertisers the freedom to explore new and better techniques that will improve the effectiveness of advertisements. To list a few new ides; ads could be placed in the borders of a video player to be shown continuously throughout a show or movie; users could be given a choice on what type of product their ad would involve (cars, jeans, video games, etc.); ads could be made interactive so that a user must participate before the movie begins playing; ads could be linked to product placement so that a consumer viewing a movie star using a certain brand named product could pause the movie and place an order with a click of the mouse. The possibilities and results far exceed what is possible with television ads.
There are already studies that show commercials online are more likely to be remembered than on television.87 Studies on Hulu’s interactive ad-viewing experience have already shown their superiority to television ads.88 Once enough data becomes available showing the greater effectiveness of online ads compared to television ads, online ad space should become a worthwhile business model to invest in.89
Also, the number of users on Hulu will continue to increase. More and more of the public is becoming technology savvy and will be demanding the effectiveness of digital technology when receiving their entertainment content. New desktop and portable computers and PDA’s all facilitate online access. Also, viewers that watch a show first on network television may re-watch the show on Hulu, doubling the advertising revenue gained from that viewer. Most importantly, though, Hulu is reclaiming viewers that would have otherwise downloaded pirated television episodes illegally.
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