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Correction to This Article
The article incorrectly said a new Web service, Hulu.com, will feature "Dawson's Creek" and "Terminator 2." It will offer content from Warner Bros. Television Group and Lionsgate, but not those specific titles.
Hollywood Tests Tolerance For Ads With Online Video

By Kim Hart and Mike Musgrove
Washington Post Staff Writers
Wednesday, March 12, 2008

Watching video online has typically entailed viewing short snippets of celebrity news, music videos and homemade clips. But as streaming video becomes more popular, Hollywood is trying to figure out how to make its old business translate better online.

Hulu, a joint venture of NBC Universal and Fox, debuts on the Web today with a large library of advertising-supported television shows, movies and other video.

Hulu requires viewers to sit through two minutes of advertisements for a typical half-hour episode, or roughly 75 percent less commercial time than the typical prime-time TV show. Users of digital video recorders can skip commercials, but there's no fast-forwarding through Hulu.

Hulu, like other online video companies, is testing viewers' tolerance for ads. Having gained a following among about 5 million users during its test phase, Hulu plans its broader launch today. It is also planning to announce deals with Warner Bros. Television Group and Lionsgate to make popular shows like "Dawson's Creek" and movies like "Terminator 2" available on the site.

Hulu's library doesn't cover everything. ABC and CBS, for example, are not part of its roster of about 50 studios and networks. But Hulu chief executive Jason Kilar said the company has quadrupled the number of titles in its catalog since starting private testing in October.

The early popularity of Hulu and the growing audiences for other premium video content suggests that online viewers are interested in watching more than just the amateur videos that catapulted YouTube to success, said David Hallerman, senior analyst at eMarketer, a market-research firm.

Advertisers may be more willing to associate their brands with professional content, rather than user-generated videos that might be considered off-color or inappropriate, he said.

"A trusted environment would draw more of this money," Hallerman said. He noted that YouTube has struggled to translate its popularity in advertising revenue.

Jayant Kadambi, chief executive of YuMe, a Redwood, Calif.-based advertising network that lets publishers pair ads with videos, said tolerance for advertising is low for the amateur snippets.

"With user-generated content, people don't want to see the ads," he said. "But if you're desperate to watch something specific you'll put up with more ads to see it."

Nissan is working with Hulu, sponsoring such shows as NBC's "Heroes."

Robert D'Asaro, U.S. director of digital strategic alliances at ad agency OMD, said his company's studies have shown that Hulu users tend to be more engaged with what's on the screen than the average television viewer, in part because they usually sit closer to the screen and have fewer distractions. As a result, he said, users tend to come away from watching Hulu with more of an impression of the commercials than do television viewers.

"It's the two-foot experience as opposed to the 10-foot experience," he said.

Melissa Adams, senior manager of Nissan North America's media and brand integration, said the company's marketing is simply following the viewers.

"There's been so much fragmentation in media consumption," she said. "We have to go where consumers are going."

Kilar, who worked at Amazon.com for nine years, took over Hulu a year ago with the goal of hosting all the premium content on the Web.

Hulu's advertising strategy is to be both targeted and minimal. Each show has a single sponsor. It is experimenting with allowing users to choose which ads to view, and with showing movie trailers upfront in exchange for shows without commercial breaks. But unlike other sites -- such as NBC and Fox's independent sites -- it doesn't try to keep users captive; if users search for television shows or movies that aren't available on Hulu, they are directed to other sites. Users can also embed snippets of content from Hulu in their blogs or online profiles.

Allowing users to chose ads is innovative, some analysts said.

"It's one of the more aggressive moves we've seen," said Bobby Tulsiani, an analyst with Jupiter Research. "It's much more targeted than what you see on TV, where its hard to say if an ad actually got watched."

While Hulu keeps track of what users watch, it does not yet target ads based on their TV-viewing preferences. But the company said it is investing in more sophisticated technology to target ads based on viewers' habits.

Hulu has plenty of company among start-ups eager to make video advertising more lucrative and targeted.

YouTube has partnerships with about 1,000 premium content producers, including National Geographic, CBS and Sundance, but videos are no longer than 10 minutes. In August, YouTube started superimposing transparent ads at the bottom of videos that appear for only 10 seconds, which the site said turns fewer viewers away than 30-second ads before videos start.

Video-search company Blinkx embeds ads that are relevant to a video's content. Using voice-recognition software, Blinkx shows ads related to keywords mentioned in videos. Most of Blinkx's users also prefer professional content over amateur video, according to chief executive Suranga Chandratillake.

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