If you thought the 500-channel universe changed things, wait until you get a load of the infinite-channel universe. ... The habit of tuning in at a specific time for a favorite program will seem pretty last century.
-David Carr, writer of a weekly column for The New York Times that focuses on media issues, including film and television
Anyone who connects to the Internet already has a 21st century option: Hulu, which legally offers content from more than 235 of the world's leading production companies, including most of the entertainment industry's biggest names: ABC, FOX, NBC Universal, PBS, Sony Pictures Television, Warner Bros., just to name a few. Users can watch programming anytime. There is no need to download any software. All that's needed is an Internet connection. Even better, a hit show like ABC's "Modern Family" viewed on Hulu has less than half of the ad time than the network broadcast.
Has Hulu, founded in 2007, caught on? Check out the company's annual revenue numbers:
- 2008: $25 million
- 2009: $108 million
- 2010: $260 million
Andy Forssell has been there since the beginning. Actually, the Carnegie Mellon alumnus was there since before the beginning. In keeping with the drama that permeates his vocation, Forssell's own career path has had a few plot twists.
As a young boy, Forssell learns the value of building things from the ground up. While other children make forts out of pillows, he learns about carpentry from his father, whose hobby is constructing chests, dressers, and cabinets built to last with solid dovetail joints. The craftsmanship inspires his son, a child rattling around on a western Pennsylvania farm with plenty of scrap wood and tools at his disposal. The youngster puts the leftovers to good use, constructing some rudimentary clubhouses, forts, and tree houses throughout the family property.
In high school, Forssell's desire to create with physical materials yields to a different kind of undertaking-computer programming. "Software was a big jump," he says. "I started making things that are in their own ways beautiful and could stand up to my dad's beautiful chest of drawers."
His drive to create leaves him conflicted about his plans after high school. He's interested in developing his leadership skills, but he also wants to follow his interests, namely programming for computers, which in 1983 are becoming more of a presence in daily life. Ultimately, he decides to follow in the footsteps of his father and grandfather by attending West Point. But, after his first year there, he wonders whether he made the right choice. "At West Point, they throw so much at you, by design I might add, and you're constantly juggling. You learn to handle everything at once and that makes you a better leader, but it's also hard to dive deep into any one interest exclusively," he explains.
He knows that's not the case at a school like Carnegie Mellon University. He transfers there in his second year to study electrical engineering and computer programming. "For me, Carnegie Mellon was all about focus, and I loved that," he says. "I'd spend 28 hours straight in the computer lab writing code. It's so rare to be able to do that, having that insane focus on something and the ability to dive really deep. Most of the rest of your life you don't get to do that."
After earning his degree in 1987, he makes an interesting career choice, opting to forgo job offers so he can return to West Point. "I thought I had more to learn in the form of leadership." After earning a second degree, he serves in the Army and achieves the rank of Captain. Upon completion of his five years of service, he heads for Harvard University, where he earns his MBA in 1997.
At last, he is ready to enter the civilian workforce. He's hired by the software company Siebel Systems, where he rises to vice president of customer relationship management. After Siebel is acquired by Oracle in 2006, he stays on, but his boyhood desire to "build things" makes him restless. He is in the midst of exploring several options, when he gets a call from a business school friend, Jason Kilar, a former Amazon.com executive. He wants Forssell's opinion about a joint venture that includes NBC and Fox, which Kilar will head. The concept is to provide Internet users with TV broadcast entertainment programming.
Up until then, 2007, online streaming of TV shows left much to be desired from the audience's standpoint. The television networks had begun to add full-length episodes of popular series to their Web sites in 2006, but if viewers wanted to watch a Fox show and then an NBC show, they had to shift between network Web sites, which sometimes required the downloading of special plug-in software unique to each site. Some networks were making shows available through YouTube, but that was a site packed with cat videos, baby clips, and other amateur-generated content. What Kilar is proposing would be the first-of-its-kind single site that would provide one-stop access to programming from premium television and motion pictures. Forssell tells his friend that it's a great idea.
Kilar believes that to be successful he has to instill a culture geared toward innovation, which would mean assembling a leadership team with "exceptional foresight." It's not lost on Kilar that Forssell, a former Captain in the Army, knows how to lead, in addition to his stellar academic and employment track record. A job offer from Kilar soon follows. The offer is appealing to Forssell; it's a chance to build something from the ground up. He accepts and becomes senior vice president of content acquisition and distribution of the company, named Hulu-which means "holder of precious things" in Mandarin. The name appealed to management given the premium-content mission of the company.
For the networks, Hulu clearly would be a holder of precious things. Google had just purchased YouTube, and the Internet giant had proposed a licensing deal for programming that the networks viewed as unfavorable. Hulu, the networks hoped, could be a viable YouTube competitor and also reduce Web surfers' reliance on pirate sites that illegally distribute network content.
Hulu's success would depend, in part, on mastering the Web. Dan Fawcett (TPR'98)-president of digital media for Fox and an early board member of Hulu who helped found the service-reveals there was tremendous pressure to launch Hulu quickly because "we're content people, and we know how to distribute things, but we don't have a lot of collective experience on how Web sites work. We needed people who didn't necessarily know so much about distribution of film and television content but knew the Web medium." He liked Kilar's choice of a Carnegie Mellon alumnus because he fit that techie description.
However, building a better Web experience for viewing TV shows is one thing, getting networks and studios to sign up is another. A key part of Forssell's job becomes convincing other broadcasters and cable outlets that they should put their programming on Hulu. His day-to-day routine on the job entails spending hours explaining to TV, movie, and studio executives how Hulu works and why it will catch on with the public.
Forssell's Carnegie Mellon roommate, Tom Marchok (E'87, E'89, E'95), had no doubts about his former classmate's tenacity to make a truthful, call-for-action pitch. He recalls their undergraduate days, when Forssell completed a four-year degree in three years, while still finding time to box at a neighborhood gym. Marchok, now a director at Intel Capital, Intel's global investment organization, has stayed in touch with his roommate and explains how Forssell indirectly draws on his background as an Army tank platoon commander: "He isn't a guy who gets wrapped up in office politics and hearsay; he's just focused on getting the job done right. In the military, you're dealing with life-and-death situations, you don't have time for that kind of stuff, and he's carried that into the business world, and that's a huge advantage."
As for building a better Web experience, nobody would confuse that with a life-and-death situation, but it certainly had its challenges. The problem was how to stream thousands of programs simultaneously to people sitting in front of their computers across the country. Marchok notes that sites like YouTube launched without fanfare and grew over time as Web surfers discovered them. Because Hulu had media corporations behind it, the site would be under the microscope immediately. From day one, Hulu needed to have in place an infrastructure that would be cost-effective and could handle peak periods of demand.
"They were forced to solve problems on a scale no one else had been forced to solve," says Marchok, comparing Hulu's bandwidth needs to traffic on a city's expressway. "In off-peak periods, things flow smoothly; but in rush hour, things are much more difficult to manage."
Hulu came through by the 2008 launch, as evidenced by numerous reviews, eventual partnerships, and consumer usage. PCMag.com rated Hulu as "very good," saying, "The site's simple, clean design makes using it quick and intuitive." Time magazine named Hulu No. 4 on its list of the "50 Best Inventions of 2008." And, by 2009, the Walt Disney Company joined Fox and NBC as a Hulu equity owner, bringing content from ABC and other Disney-owned networks to the site. Today, thanks in large part to Forssell, Hulu features ads from more than 350 companies and content from 235 television and motion picture producers. On the television front alone, more than 30 million users come to Hulu monthly watching 260 million streams of programming.
The annual revenue spikes also illustrate Hulu's success. But Forssell says it's too early to declare victory. To remain profitable and viable, he says, Hulu must continue the balancing act of serving multiple constituencies: consumers, advertisers, and content providers. Users want no ads. Advertisers want plenty of them. Content providers want viewership, but not at the risk of eroding traditional television viewing.
It's up to Hulu to manage the demands of all three groups. When Forssell talks to a studio chief about providing television content to Hulu, he explains how the site can earn money the studio otherwise couldn't earn on that content. Hulu and the studios that provide the site's video content split the ad revenue generated by people watching programs online. Programs on Hulu carry advertising, but much less than what viewers see on TV. This arrangement, points out Forssell, provides a boon to all parties:
- consumers appreciate fewer ads;
- advertisers value their ads facing less clutter than on prime-time television;
- content owners gain a new revenue stream through the online service.
Hulu's three-year performance is no shock to Eric Close (TPR'97), CEO of Pittsburgh-based RedZone Robotics, a wastewater management company that provides robotic inspection technology and data analysis software. Close understands what it takes to be an entrepreneur. RedZone, a Carnegie Mellon spin-off, was rated the No. 1 water information technology company last year by Lux Research.
He also knows Forssell, who is an investor in RedZone as well as an informal advisor. He says Forssell's entrepreneurial mindset-thinking about concepts and taking a vision and putting it into practice-has been a key to Hulu becoming one of a handful of market leaders that will alter the way audiences consume media. "The convergence is happening in real-time as we speak," says Close, noting that the business partnerships Forssell is forging with studios and networks position Hulu well. "Andy has the opportunity to help reshape media and the way it's distributed as we know it."
But that fundamental reshaping makes some in the television industry nervous. The old way of measuring success-Nielsen ratings that report how many viewers are watching broadcast airings-continues to shrink as consumers spend more time watching shows online. Steve Levitan, executive producer of the Emmy award-winning sitcom "Modern Family," has lobbied ABC executives to take his show off sites like Hulu and even ABC.com. "We're making it far too easy for people to watch [the show] in other mediums without getting the proper credit for it," Levitan says. He's not convinced that revenue from sites such as Hulu make up for declining television ratings. "When the ratings come out the next day, we're judged on that."
The objections of Levitan are the Hollywood business minefield that Forssell navigates on a daily basis. One of the goals for Hulu is to achieve parity with revenue generated by on-air television advertising. Here is how he says they can do it with fewer ads: "The ad load on traditional television has been growing for decades. A segment of today's audience has made it clear that they won't watch that many ads, and that segment is growing. They fast-forward through ads on DVRs, or they multi-task and don't pay attention-and if the ads aren't effective in delivering value to advertisers, that's a problem for everyone involved. That's why we are so obsessed with using technology to make a much smaller ad load worth just as much to advertisers as a large one-that's a win for everybody."
For consumers, in addition to free streaming of ad-supported programming, Hulu now offers an optional subscription service, Hulu Plus, which gives users access to a deeper library of programming. It, too, is available via the Web and is compatible with mobile devices, including iPhone, iPad, iTouch, and select Internet-connected television sets, blu-ray players, set-top boxes, and game systems. The next great frontier for Hulu is one that's been on the horizon for years but has yet to be bridged: the convergence of television sets and computers, an easy way to watch Hulu not on your desktop PC but on the HDTV set hanging above the mantle in the family room. Aside from some cumbersome approaches best left to early technology adopters, there's been no easy, mass-marketed way to bridge the two screens.
Forssell explains that reasons for the delay include the cost of equipment and inertia on the part of the country's cable and satellite providers who have yet to offer set-top boxes that allow for online streaming in any meaningful way. He believes that is changing rapidly, though, as equipment costs are starting to fall and as competition from stand-alone boxes (e.g., Roku, TiVo) increases. Whether it's a more computer-like box rented from the cable company or one purchased at stores like Best Buy, Forssell says Hulu will be positioned to take advantage of whatever audience-embraced result emerges. Plans are already under way at Hulu to build a preeminent interface and revenue engine so it can seamlessly expand its array of services.
Meanwhile, the biggest challenge for Hulu today, Forssell says, is simply to get people to try the site. When they do, the company's research has found that they appreciate the state-of-the-art online viewing that is practically as simple as turning on the television in yesteryear. Forssell found feedback from one anonymous customer particularly heartening:
"This is the way things should have been the last five years. What took so long?"
Rob Owen is a former president of the Television Critics Association and an award-winning TV writer/critic for the Pittsburgh Post-Gazette.
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