2005:  YouTube loses $271 million

2006:  YouTube loses $276 million

2007:  Google buys YouTube for $1.7 billion

Google doesn’t break out how much YouTube is losing.  However, the pesky problem of just how to monetize user-generated video clips remains unsolved while the dramatic growth in YouTube viewership continues unabated - with nothing to offset the costs of scaling up bandwidth and hardware to meet the increasing demand,  is it unreasonable to estimate that YouTube may be losing somewhere upwards of $1 million per day by now?

Now consider Hulu: while the well-implemented (and deservedly popular) premium video service isn’t losing anywhere near the kind of money YouTube is (according to NBCU’s Jeff Zucker, it’s expected to turn a profit “soon”), that hasn’t actually happened yet either.

Of course, the difference between Hulu and YouTube is the difference between last week’s episode of “the Office” and a video clip of a water-skiing squirrels - and it’s a lot easier to sell advertising for the former than for the latter.  Even so, though, as an article in Adweek worth reading recently noted, Hulu still has trouble selling its ad inventory - this despite having to carry only a fraction of the inventory (or ‘ad load’) that traditional linear television does.

This is a problem.

Some analysts believe subscription pricing could be the answer, but I disagree: look at Slate, the Wall St. Journal, or any number of other websites that tried subscription pricing - all were forced to revert to either full ad-support and/or (in the case of the WSJ) micro-payments.  In short, I believe subscription pricing for a web service is simply a non-starter - but what else could solve the problem Hulu has selling ads?

Answer:  A lean-back viewer experience.

Viewers will tolerate a much higher ad load while sitting on the couch rather than at the desk - imagine the combination of linear broadcast television’s heavy ad-load with the high CPM rates web publishers are able to charge for user-targeted internet advertising…    Monetization problem?  What  monetization problem?

It’s not going to be easy, though - this scenario would require  Hulu to leave the safe confines of the web browser for the big wide world of consumer electronics - in other words,  internet-enabled television.  In the process, the fundamental business models of entire  industries will be significantly disrupted - among others, the game is sure to change for the incumbent internet service providers, cable operators, and content owners.   Ironically, some of the companies most affected will be Hulu’s owners: NBCU, News Corp., and (recently) Disney  - but  despite current difficulties grappling with the implications of Hulu on TV (i.e. the ongoing Boxee situation),  I still believe the service will ultimately find its way onto the television.  Technically, it’s just too good not to - and from a business perspective,  a single service aggregating content from (and owned by) 3 of the 4 major networks just makes too much sense.

Long-term, then, that’s where I think the company is headed - beyond the browser.   They’re already “sticking a toe in the water” via the upcoming Hulu iPhone app (which could have even more impact if available on the rumored Apple netbook), but equally significant is the recently launched Hulu Labs platform.  This experimental programming interface is designed precisely to foster development of non-browser-based Hulu apps,  and is already responsible for the “Hulu Desktop“, an application designed for “lean-back viewing from your PC” (a point reinforced by the television remote control featured prominently in the foreground on the Hulu Desktop website’s artwork).

For its part, YouTube has rolled out YouTube XL - a simliar lean-back user interface also capable of being controlled by a remote.  Clearly, while Hulu and YouTube have fundamentally differences in both content and business models, both recognize the need to move beyond the browser.  Within a few years,  look for internet video - lean-back, television-based internet video, that is - to eclipse (and, in fact, subsidize) the lean-forward browser-based internet video model we know today.

Yes, some profound business disruptions  will have to be navigated first, and there’s sure to be pushback from the affected incumbents - but in one form or another, the power of the technology will dictate that internet television does happen - and Hulu and YouTube will likely be major players.