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Hulu won't be clowned by iTunes

Services that sell movies, such as iTunes, generate higher margins for Hollywood but there's a deeper pool of money for ad-supported sites to dip into.

SAN FRANCISCO--Hulu CEO Jason Kilar readily acknowledges that digital movie sales from sites such as iTunes mean higher profit margins for Hollywood studios than ad-supported sites can deliver.

But Kilar defended ad-supported services like YouTube and Hulu--formed by News Corp., and NBC Universal--by pointing out that they can draw from a much larger market. Film sales account for $20 billion annually, while ad-supported revenue is $80 billion, Kilar said during his keynote address at the NewTeeVee Live conference on Thursday.

Kilar was responding to comments made by Tom Adams, who operates Adams Media Research, an entertainment industry research and consulting firm. In an interview with CNET News, Adams argued that pay movie services will always be more welcome in Hollywood than ad-supported rivals.

The reason for this, according to Adams, is movie sales and rentals typically enable Hollywood to pocket more cash per viewing than it gets from ad-supported distribution.

Kilar concedes this, but says the market for ad-supported TV shows and films is so much deeper, that even if Hulu is less profitable on a per-viewing business, it still could conceivably generate more revenue for content owners. To snatch more of these ad dollars, Hulu's plan is to make the site a more effective advertising platform than other ad formats.

Jason Kilar
Jason Kilar

"Hulu is a very simple business model," Kilar said after his speech. "We believe that if we provide an advertising service that has higher brand recall, higher purchase intent (from users)...relative to billboards, radio and newspapers, advertisers will respond to that. And they are. That's why they are paying premium for ad spots on a higher cost per thousand (CPM) relative to other environments."

Adams also asserted that Internet users won't tolerate the same number of ads online as they do from traditional TV. Hulu posts four times fewer ads into its films and TV shows as television broadcasters and Adams suggested that visitors aren't tolerating more.

"(Adams) made it sound like we tested more ads and they didn't work," Kilar said. "We haven't done anything different than what we're doing now. It's always been two minutes of ads for every 22 minutes of content."

In its first year in business, Hulu has surpassed almost everybody's expectations, certainly Google's. Execs at YouTube's parent company at one time referred to Hulu as "The Clown Company." The joke turned out to be on them.

Hulu has become a force when it comes to offering full-length movies and TV shows. Kilar won't share data on revenue or user adoption, but did say Hulu now sees 12 million monthly visitors and serves 145 million monthly streams. Among Hulu's biggest accolades is that YouTube has followed it into offering full-length TV shows and feature films.