The Mystery Surrounding Declining Hulu Viewership

22 Oct, 2012 By: Erik Gruenwedel

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Perhaps Providence Equity Partners knew something when it sold its 10% stake in Hulu earlier this month — a transaction that doubled to $200 million (from $100 million) its initial investment.

Los Angeles-based Hulu, which is co-owned by The Walt Disney Co., NBC Universal and News Corp., has seen the number of hours spent viewing video on its site fall sharply in 2012, including a 58% drop to 65 million hours viewed in August from a peak of 156 hours in March, according to Wedbush Securities and comScore data.

Nieslen reported that Hulu — excluding Hulu Plus, the SVOD service with more than 2 million subscribers — saw unique monthly visitors decline to 12 million in August from 19 million last December.

The decline resulted in Hulu’s online video consumption market penetration falling to 1.5% from 3.9%. Google-owned YouTube continues to dominate online video consumption with 26% total market share in August — a percentage that dropped from 33% in July, according to comScore.

Meanwhile, comScore found that the number of total domestic online videos available grew from 45 billion to 47 billion between March and August.

“We are at a loss to explain the decline [at Hulu], and we are dubious that it can be explained alone by a rapid shift to mobile consumption,” Wedbush analyst Michael Pachter wrote in an Oct. 22 analysis.

Indeed, Netflix’s market share grew from 2.8% in October 2011 to 3.3% in August. The amount of content consumed grew by 28% during the same period, reaching 140 million hours of video watched on the subscription video-on-demand pioneer’s platform in August, according to Wedbush. The drop in Hulu’s viewers was driven by a 44% decline from a peak of 2.8 billion videos viewed in March to 1.6 billion in August. 

So why should Hulu care? Because it — unlike Netflix and Amazon Prime Instant Video — sells ad space on its videos, including an increasing slate of original content. Hulu this year has about 1,000 advertisers and 410 content partners, which was up 20% from the 343 content partners listed by the company in the beginning of 2011, according to Pachter. Hulu also this year began selling ads based on viewers actually watching them in their entirety at CPMs (cost per thousand) about 10-times higher than YouTube.

As Hulu saw a 40% decline from 1.75 billion video ads served in March to 1.55 billion video ads served in August, according to comScore, its ad-supported streaming video business model has also spawned competition thereby eroding its video ad market share from 30% in February to 11% in August.

Lone bright spot: Unique viewers to Hulu are spending more time on the site. Nielsen found that unique visitors to Hulu watched 4.4 hours of content in August, which was up 40% from 3.1 hours in December 2011.

Regardless, media reports suggest Hulu’s owners are revisiting their strategy on the site, including scaling back investment and exclusive license deals for their network programming — opting instead to license content to proprietary and third-party websites.

Disney, News Corp. and Comcast (owner of NBC Universal), which report quarterly financial results beginning Oct. 26, are expected to comment further on Hulu going forward.

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