Hulu recently announced they would only charge advertisers for video ads that people watched to completion instead for all who watch any part of the ad. On the surface this seems like a win for advertisers. It’s also a win for Hulu as they are going to charge higher rates for completion-based advertising as opposed to impression-based advertising. Since Hulu is the largest video advertiser on the Web (yes they are bigger than Google in this category), this is big deal.
Upon further research I am not sure who wins on this one. Hulu claims their ad completion rate is 96%, but apparently their advertisers were not happy paying for the 4% scrap rate. (As lean proponents, we are a big fan of scrap/waste reduction as well.) Since Hulu has little control over viewers’ willingness to watch an ad all the way through, they are simply going to only charge customers for ad view completions. As long as they raise their rates by more than 4.2% they win. Their rate increase is not noted in the information I reviewed, however, I suspect it is more than 4.2%.
What does the advertiser get? Well, piece of mind and the ability to tell their boss that they are only paying for complete views. This is likely to be worth more than its apparent economic value. But then that is one of the mysteries of the psychology of pricing.
What if the completion rate for an ad is materially less than 96%? Does Hulu get short-changed then? Not necessarily. They always have the option of either raising the price, or not agreeing to accept the ad.
Pay for performance is a marvelous thing, just make sure it is win-win for you. And if it is going to be win-lose, make sure you are on the “win” side.