The Business Side of Hulu

Headquartered in Los Angeles, Hulu employs approximately 125 people in L.A., New York, Beijing and Chicago. Hulu's board of directors includes executives from NBC Universal, Fox, Providence Equity Partners and Hulu itself. Communication with the public is of utmost importance to the company: Virtually since day one, CEO Jason Kilar and others have posted regularly to the Hulu blog to keep people informed of new site features and business deals.

Like the broadcast television business, Hulu depends on revenue from its sponsors so it can provide video free of charge. Of course, everything comes with a price: Hulu loads advertisements from its sponsors every time you request a video. These ads include short video spots that run before and after the video, and during the video's natural commercial breaks. Each sponsor also contributes ad banners and video overlays, which are displayed with the video and linked to the sponsor's site. Hulu offers its sponsors a complete list of these and other ad formats in its media kit.

Hulu splits its ad revenue with the site's content providers and distribution partners. While the company doesn't disclose its current revenue distribution percentages, some reports have stated that Hulu gives about 70 percent of its ad revenue to the content provider and about 10 percent to the distribution partner if the video was shown on the partner Web site [source: Blodget]. Critics of Hulu's business model have scrutinized the company's choice to keep as little as 20 percent of its revenue, but Hulu continues to partner with more content providers (most recently, Disney in April 2009) and enjoy a steady increase in sponsors and viewers [source: Hulu].

Noticeably absent among Hulu's partners is the Internet sensation YouTube. Early in Hulu's development, executives from News Corporation and NBC Universal approached YouTube in search of fresh user-generated content for Hulu. However, throughout 2007, Hulu's business model changed shape to differentiate itself from YouTube. Instead, Hulu would show only "fresh, premium broadcast TV content" from professional providers, free from the mix of user-uploaded home videos and creatively copyright-bending clips that made YouTube a hit [source: Kuchinskas].

Continue to the next section to read about the challenges Hulu faces -- and how the company is meeting those challenges.

What in the Heck is a Hulu?

In August 2007, Hulu CEO Jason Kilar posted on the Hulu blog that the company chose its name because it is "short, easy to spell, easy to pronounce, and rhymes with itself." In a May 2008 post, Kilar explained that in Mandarin Chinese, "hulu" has two meanings that are both relevant to the company's mission. One meaning is "gourd," and in ancient times, people would hollow out the hulu (gourd) for use as a "holder of precious things." He states that the other meaning is "interactive recording." Following long naming sessions, Kilar's team decided to use Hulu as an "approachable and fun" name that did not already have a meaning in the English language [source: Hulu].