Lights, camera, action at Hulu

May 24, 2012: 1:26 PM ET

More and more content distributors like Hulu, Amazon, and YouTube are starting to make their own programs. Will anyone watch them?

Hulu recently announced plans to release original programming in addition to its lineup of network shows like "30 Rock."

FORTUNE -- TV is so good these days that there's no excuse for watching anything that bores you, says Hulu's vice president of content, Andy Forssell: "Shame on you if you're watching something that's just sort of entertaining," because something great is always on.

But now, companies like Hulu want to do more than just provide a portal for great TV, they want to make it. Last weekend, Hulu announced plans to release three original Hulu-branded shows this summer. One is a movie review program called Spoilers, the trailer for which repeats "only on Hulu" enough to sear its branding message in viewers' minds.

The question is, will Hulu and other companies make anything that people will actually want to watch?

It will not be a cakewalk. Like Forssell said, there is a fair share of solid television on right now, and even the programs that are terrible are addictive. As always, new content must compete for eyeballs that may already be overcommitted to established shows. At the same time, companies that have traditionally been distributors -- think Netflix, Amazon and YouTube, to name a few -- are entering the creative space as well.

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Plenty of companies that mainly show others' content have tried, and failed, to do this before. Former Yahoo (YHOO) CEO Terry Semel, a man with a Hollywood background, joined the tech giant in 2001 with a vision to turn the company into a major producer of its own content. That didn't turn out well. 

In 2009, Comcast (CMCSA) created a division called NBC-Universal Digital Studio to make original web content, but closed it down in 2011. EBay (EBAY) even tried to launch its own reality series called "Make it Happen," that told the stories behind the people selling goods on the site; it never got anywhere. Several companies have learned the hard way that making content does not mean that it will take.

Yet, many distributors are going to have to try, and not necessarily because they will rake in huge profits. The point of producing original content is less about making the next Mad Men, although that would be great, and more about differentiation.

Soon, content is going to become basically ubiquitous, says Uday Karmaker, an expert on new technology and business at UCLA's Anderson School of Management. "It's going to be hard to win on content that's been around for a long time," he says, since "everybody will have the ability to distribute it at some price."

The pricing model will sort itself out, Karmaker believes, and customers will choose to subscribe or pay per-unit of entertainment based on personal preference. But original content gives distributors the opportunity to have something first, Karmaker says, which still counts for something.

Hulu certainly sees its content as a differentiator, says Forssell, but there is also a business case. It can cost a couple million dollars to buy the rights to show an old program from the 1970s, for example, and "At some point, it's crazy not to devote some piece of your budget towards getting something made."

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Hulu has a $500 million budget to spend on TV and movie programming this year. "We at heart are a distributor and a platform," Forssell adds. "I see [original shows] as an example of what you can do on this platform without risking a crazy amount of money."

These shows could also tank, like previous efforts. In fact, many will, says Karmaker, who thinks that because it is so difficult to predict viral content, the companies that have plenty of funding to throw at projects will probably have an advantage. He cites Amazon (AMZN), for example, which has such a strong set of core businesses that it can spare some change on a failed reality show or two.

Despite the failed previous attempts, the market for original online content is just starting to mature, says Rebecca Lieb, a digital advertising and media analyst at Altimeter Group in New York.  According to a joint report by PwC and the Interactive Advertising Bureau, revenue from online display-related advertising (which includes formats such as text ads, video, and banner ads) in 2011 increased by 15% from the previous year, totaling $11.1 billion. "You know, when cable first started up, it was all about licensing content," Lieb says. "The first sign of the maturity of the cable channel was to start earning enough revenue to produce original content. Now we're seeing history repeat itself online."

And the same phenomenon that brought us subculture-specific cable services could go bonkers on the Internet. "I think that the Web is almost by definition a niche medium," Lieb says. "Just as we saw cable television fragment into niches that at the time seemed truly extraordinary -- the golf channel, the fishing channel -- the web can longtail in ways that is going to keep making those things seem positively mainstream."

Basically, consumers' interests are diverse enough that if distributors get the formula right, viewers will end up habitually watching some pretty weird stuff. And as viewers come back for more, companies like Hulu hope, advertisers will come right along with them.

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Shelley DuBois
Shelley DuBois
Writer - Reporter, Fortune

Shelley DuBois writes on management issues for Fortune.com. Before joining Fortune, she was a producer for National Public Radio's Science Friday and worked for Wired. Shelley has a graduate degree in science, health and environmental reporting from New York University. She lives in Brooklyn.

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