Could you say, these days, where exactly is the line between the television and the internet? Even if you haven't worked out quite how to hook your computer to your television set yet, perhaps you have found yourself watching some of your favourite shows on the laptop. The BBC's wildly popular iPlayer has collapsed the divide between telly and the web in the UK. In the US, broadcasters routinely put their hit shows up on their websites for viewers to catch up on the latest episodes, and the major networks have also collaborated on a joint venture called Hulu, which acts as a one-stop-shop for all their latest shows.
It is a kaleidoscope of creativity, as broadcasters seek new ways to distribute (and profit from) the content they produce, and viewers demand the option of watching what they want, whenever, wherever, and on whatever device they damn well please. The question, though, is whether we are moving from a period of experimentation to something a bit more grown up, a coming of age for internet television.
For those who think we might be, evidence arrives. In the US, Hulu has approached a number of investment banks to sound out the prospects for a stock-market flotation, something it hopes it could launch this autumn and which it dreams could value the business at more than $2bn (£1.3bn). Those conversations will be the first substantial indication of what institutional investors think about the prospects for television on the internet. Broadcasters, television producers and internet executives alike will want to stay tuned.
Hulu was created three years ago by three of the four free-to-air networks in the US: General Electric-owned NBC, Disney's ABC and Rupert Murdoch's Fox. The trio agreed to put the most recent episodes of many of their hit shows on the site, and Hulu tied up content deals with a number of other channels too. The roster of shows has changed over time, sometimes to the bewilderment of viewers, who discovered earlier this year, for example, that Comedy Central had taken The Daily Show with Jon Stewart off Hulu in favour of directing users to its own website. But it has been growing steadily, and branching into feature films as well. And CBS, the one major US network that held out against putting its shows – which include CSI and Two And A Half Men – is in talks about finally doing so.
There is increasing competition, though. Google's YouTube is growing up fast. Originally a ghastly online version of You've Been Framed and more recently an online jukebox, it is now streaming feature-length shows and films and aggressively courting content companies in order to do so. And the latest generation of games consoles connect to the internet as well as to the living room telly, which is why Sony, Microsoft and Nintendo are all tying up content deals as well, in the hope of turning themselves into television-on-demand providers.
Undeniably, online video is big business. Screen Digest, the media research company, calculated that revenues last year were $1.6bn in the US, and $131m in the UK, and is predicting it could explode to $4.2bn and $512m, respectively, by 2014. Hulu declared revenues of $100m last year from adverts that run before and during its shows and, according to The New York Times, which was first to report plans for the flotation yesterday, is telling bankers that it will make a similar figure this year.
Appetite for Hulu shares will depend crucially on how much of that revenue it has been able to turn into profit, and though that number is not public, it appears to be much smaller. Industry insiders believe that 65-70 per cent of all its advertising revenue is turned over to the content providers. That is a lot – but remember the company is controlled by the content providers themselves. Investors considering buying in at the float might not be so happy with that.
In search of other sources of revenue and profits, Hulu is in the process of launching Hulu Plus, for which it is asking viewers to pay a subscription of $9.99 (£6.40) a month, in return for which they will get access to a full season of shows, not just catch-up episodes, plus a whole new library of classic content, from Ally McBeal to The X-Files. An effervescent Jason Kilar, chief executive, said at the launch of Hulu Plus that the service was "our answer to the question of, 'What if your favourite TV shows loved you back?'"
The service is only in beta at the moment, so it will be a while before investors can judge whether subscription revenues will add meaningfully to revenues. Analysts are sceptical. Dan Cryan, head of broadband media at Screen Digest, points out that just 5 per cent of users of the Spotify online music service in the UK actually paid up for a monthly subscription, according to figures from earlier this year, and that was even while free memberships were being restricted. Obviously television is different to music, but perhaps not much. In both cases, consumers have got used to not having to pay. "Video content on the internet is widely and abundantly available for free, both legally and illegally," Mr Cryan said.
There is another wrinkle that might complicate a Hulu flotation. Viewership figures on the internet are shockingly hard to pin down – and Hulu has been at the sharp end of the debate about how to calculate them. ComScore, which is supposedly the Bible on these matters, revised its methodology in June, and Hulu's numbers dropped from 43.5 million in May to 24 million the next month. That exacerbated what would already have been a sharp drop because all the major US shows go on hiatus for the summer, and it pulled Hulu down to No 10 on the list of video sites.
Hulu will be asked a long list of challenging questions if it decides to go out and seek buyers for some of its shares in a flotation. As broadcasters used to say, don't touch that dial.
The post-VCR world
British consumers have bought about 50 million video cassette recorders (VCRs), which have probably been loved and loathed in equal measure, over the past 25 years.
But an estimated five million households could soon lose the ability to record their favourite TV shows, as the completion of the digital switchover at the end of 2012 will sound the death knell for the analogue signal and the VCR.
Nick Simon, an analyst at the market research firm GfK, said: "With the digital switchover scheduled for completion in a little over two years, this leaves little time for people to address their home recording needs."
Of the UK's 25.8 million households, GfK estimates that only 10 million have access to recording devices through digital broadcaster services and 4.5 million via set-top boxes or DVD recorders they have bought themselves since 2004. But it estimates this will grow to a combined figure of about 20.5 million by the end of 2012.
The Government has already switched across two transmitter groups in the Border region, five in the West Country, eight in Wales and two in the Granada TV zone, including the Isle of Man. People in these areas cannot now record on their VCRs unless they can pick up a neighbouring analogue signal.Reuse content