Hulu has had a number of problems recently and traffic to the site only puts these other problems into context. The premium video site began to offer a pay-based service. It appears to have faltered perhaps because there is so much free content at other video sites. Hulu says it plans an IPO, but there is not much news about that any more.

The market has began to figure out that two sites with large amounts of video content are great threats to Hulu. Neither YouTube nor Facebook carry much premium video now, but each has begun a push into the market.

YouTube’s size is extraordinary. comScore reports that the site had 146 million unique visitors in November. These visitors accounted for 5.2 billion viewing sessions. YouTube only needs to get a relatively small number of its users to convert to the premium services it has begun to offer to eclipse any efforts by Hulu. Analysts argue that YouTube cannot convert its users from amateur video viewing to feature-length content consumption. There is evidence otherwise. YouTube viewers spent an average of 271 minutes on the site in November. That is a far higher figure than for any other site in the top ten.

Hulu has a similar competitor in Facebook. The social network had 42 million visitors in November which accounted for 144 million viewing sessions.

Hulu’s strategy has not worked. It was based on its ability to get premium content from networks and movie studios. Hulu’s audience, it turns out, is probably not large enough to support a paid service . YouTube and Facebook have large enough user bases so in their cases that many not be true.

Hulu management never thought that video sharing sites with their poor quality content and amateur contributors could compete with it. The sizes of Facebook and YouTube  will probably prove that wrong. They are huge enough to support large numbers of visitors to high-end video.

Douglas A . McIntyre

These are some of the findings of a new 24/7 Wall St./Harris Poll survey of 2,095 U.S. adults surveyed online between October 8 and 12, 2010 by Harris Interactive for a survey designed in collaboration with 24/7 Wall St.

The 24/7 Wall St./Harris Poll on American Media shows that 81% of people believe that the use of print news will decline.  That, however, is cold comfort because 55% of those questioned said that traditional media will no longer exist in 10 years. Half said that they get almost all of their news online. This number increases to 65% among the media consumers of the future – people 18 to 34 years of age. Print has been pushed into a corner which is getting smaller and smaller each day. The modest recent increase in print advertising is likely due to the economic recovery and not a rebound of its viability as a source of news and information.

The habits of consumers of online network television content is much less discussed than the question of what kind of threat online media poses to print. The trend is negative, however, for companies which own traditional television networks. This holds true whether they deliver it over cable, satellite, the airwaves, or fiber-to-the-home. The 24/7 Wall St./Harris Poll On American Media shows that 85% of those who watch television programming view it mostly on a traditional TV screen while 18% watch television shows mostly on TV and sometimes on their computers. But, the figure jumps to 24% among those 18 to 24 years old. 5% of those asked said they watch television about equally on their computers and TVs. That number jumps to 10% among those 18 to 34. For premium content providers, the  growth in the number of people who use broadband-to-the-PC to consume video programming is more bad news.

Investors have come to expect that Netflix will add very large numbers of new subscribers each quarter. That did not happen in the second quarter. Subscriptions rose only 7% from the end of the first quarter to 15,001,000. Revenue growth was also lackluster, up 5% from the first quarter to $519.8 million. Net income was up modestly from to $44 million in Q2 from $33 million in Q1. Netflix has demonstrated that it is more disciplined at containing costs than most growth companies.

Netflix’s problem is that it is not a growth company anymore. It anticipates that third quarter revenue may be as low as $546 million and total subscriptions may be only 16.3 million.

Netflix prospects are being hurt by internet delivery of premium content through websites like Hulu, but, people are also  going back to theaters to watch the movies.A Netflix subscription is $8.99 a month, which in a recession is a fantastic bargain. A subscription allows nearly unlimited access to DVDs by mail and TV-viewed movies. A movie theater ticket for single show can cost more than an entire month of Netflix. The trouble with Netflix is that people have to watch the content in their homes. A large part of the population never took a liking to the model, and now those people, and many others, can once again spend the $15 it costs to sit in a real air-conditioned movie house, where the cost of the popcorn is often more than $10.

Movie attendance has picked up considerably. Three of the top ten months by gross receipts in history were December 2009, January 2010, and June 2010.  November 2009 was in the top 20. The recession ended, according to economists, in the second half of last year. It would be a statisticians’ dream to think that box office receipts and economic activity are directly related, but, consumer activity has picked up though perhaps only modestly from the trough of the recession.

Netflix is in a newer version of the vice that Blockbuster found itself in. Movie rental stores became obsolete. Movie theaters did not. DVDs are slowly becoming obsolete, and internet delivery of films has begun to ascend. And, people still pay for tickets to attend movies. The only part of the movie viewing system that has never been overcome by new distribution models is the movie house.

It will take a great deal of time, perhaps several years, before streaming becomes the dominant model for premium content delivery. Amazon.com (NASDAQ: AMZN) has an offering now. Walmart (NYSE: WMT) has gotten into the business. People have become willing to watch movies on small screens like those on Apple (NASDAQ: AAPL) iPhones and iPads, although screen size will always be an issue for some people. Google’s (NASDAQ: GOOG) YouTube has even begun to offer paid premium content. Many people scoff at the experiment because the site is dominated by short amateur videos. But, almost fifteen billion videos were watched on YouTube in May, 43% of all videos watched online at all US websites.  YouTube could be the dominant force in online premium video if it can get people to cross the divide from show consumer-created video to premium content.

Streaming will probably be the “next big thing” in the movie and TV business. But, the movie theater has continued to be the lasting big thing. TV could not kill it off, nor could cable. Netflix is much smaller than either of those, and the original home of film viewing, the movie house, has become its enemy.

Douglas A. McIntyre

In the US, “Nearly 183 million viewers watched an average of 186 videos per viewer during the month of May. Google Sites attracted 144.6 million unique viewers during the month (101.2 videos per viewer”, the research firm reported.Among the top videos running on YouTube are “Crazy Beach Psycho!” and “Annoying Orange Picture Contest Winners”. A video of a child biting his brother called “Charlie bit my finger again” is the all time ratings leader and has been watched over 200 million times, which says everything people need to know about popular culture.

During May, YouTube had more than 14.6 billion videos viewed, followed by Hulu, a premium content site that actually shows videos with professional actors.

The stats:

Douglas A. McIntyre

Under the terms of the deal,  YouTube will offer clips from Disney’s ESPN and ABC networks. The ESPN channel will launch mid-April and the ABC in mid-May, according to paidContent.org, which first reported the story.

The agreement is clearly a win for YouTube, which despite generating about $500 million in revenue is not profitable.  The Wall Street Journal notes that Disney will share the revenue with YouTube from ads sold against its content. It will also test preroll ads and feature ESPN’s video player on its channel.

One downside from Google is that Disney is hedging its bets.  The media company is holding talks with Hulu, a rival video site backed by General Electric Co. (NYSE: GE) among others about broadcasting ABC shows.  ESPN is not part of those discussions.

YouTube and Disney had held discussions about showing full-length ABC episodes on the video site but the talks went nowhere, according to the Journal.

But, sometimes no matter how cheap something is, the price comes too high.

According to The New York Post, "YouTube’s numbers for 2008 don’t look pretty: while 3 billion videos are viewed every month, revenues could total an anemic sub-$200 million this year ."

There are a lot of theories about why YouTube does not work as a commercial enterprise. One is that the videos are too short. Another one is that they are too hard to search and put into categories.

But, none of those get to the heart of the problem. The quality of most of the clips is simply too poor for major advertisers to find compelling.

Who wants to put an ad that took $5 million to product next to a video made from a cellphone, no matter how many people watch it? A hard sell for companies used to seeing their ads on HD TV

Douglas A. McIntyre

No matter their colossal size, these internet properties bring in very little revenue and probably make very little money. Facebook was given a valuation of $15 billion last year. That may no longer be more than a pipe dream. Rupert Murdoch at News Corp (NWS) says that MySpace is missing its revenue targets. Its sales are under $1 billion, no match for old-line portals like AOL and Yahoo! (YHOO).

According to the FT "The shortage of revenue among social networks, blogs and other “social media” sites that put user-generated content and communications at their core has persisted despite more than four years of experimentation aimed at turning such sites into money-makers."

Google has no trouble telling its shareholders that any real money from its video site, YouTube, is well in the future. And, YouTube has the largest share of the online video market. But, much of the content posted there is of poor quality and hard to put into categories. Why would marketers want to be side-by-side with crap?

At large social network sites, finding the common bonds among the tens of millions of people who keep personal pages has been difficult. That makes targeting advertising almost impossible. There is also a concern that people who spend a lot of time at MySpace and YouTube are shut-ins with low household incomes.

Digg.com, Sphere, Newsvine, Del.icio.us. Dead as doornails.

Douglas A. McIntyre

But it would put a substantial valuation on this social networking site.  After the success of News Corp’s (NYSE:NWS) MySpace and after the ramp of Google’s (NASDAQ:GOOG) YouTube, everyone has catching up to do.  The space is not wide open, but it isn’t yet closed.

• Yahoo! (NASDAQ:YHOO) has been interested in Facebook as well, but the price was deemed too high at the time.
• We have hit the measurement that the company on its own was not worth much.
• These last August numbers were pretty strong though.
• There was always that pesky lawsuit that was a barrier as well.

Jon C. Ogg
September 24, 2007