I have to admit it - I have a media crush on Hulu. I love their interface, I love their content. I love the fact that I have something to watch when I’m on the road or when my wife is watching Grey’s Anatomy. At Nielsen Online, we’re going to spend an awful lot of time this year focusing on the evolving role of online video, specifically, long form video (vs. clip length). If there is a catalyst for that evolution, it is Hulu. Here’s a quick snapshot of their growth last year according to VideoCensus.

In very simple terms, Hulu more than doubled its audience from April to November. During this same time the total streams generated grew at a somewhat explosive rate:

And, while it dipped somewhat in November, Hulu’s share of time (perhaps the most important audience metric in the online video business) has shown consistent growth, suggesting that Hulu is setting the pace in the video market.

These metrics alone would suggest significant future success, but as we all know, past performance is not a predictor of future success. Hulu laid out some of its future plans in MediaPost last week. Diane Mermigas (one of the best media journalists out there) did a very nice interview with, Jason Kilar, the CEO of Hulu. To my mind one of the most telling quotes was the following:

MediaPost: What kind of metrics do you see the need to develop for your own space?

Kilar: There are different metrics that would be helpful to an advertiser, content partner or even to a user. The one that is most basic for us is the size of the audience that is watching your content throughout the day–what the trending is. We’d love to know from an advertising perspective not just how many people are watching and where, but also their recall rate and their intent to purchase. Those are the things we are very careful about measuring, and the good thing about the Internet is that you are able to capture these metrics. So, we are able to have very good transparency in real-time. The user data we log gives advertisers a visibility into the business they’ve never had before.

How do I interpret this? My guess is that Hulu sees two markets in significant change: the online display market has been under quite a bit of fire recently (to put it mildly) and the TV advertising market has been fighting against both DVR and fragmentation. Hulu has decided to take two standard effectiveness measures from those two markets: recall rate (via NielsenIAG), and offline sales effectiveness (an area pioneered by the joint Nielsen and Yahoo! product ConsumerDirect). They figure if they can beat TV at the recall game – they win in branding. If they beat online display advertising in offline sales – then they win in ROI.

What I find most interesting here however is that there is no talk about “engagement.” It seems like one of the largest areas of work in online video measurement has been around starts, stops, rewinds etc. Basically this approach is mapping the consumer behavior on the stream. We make the assumption that this type of mapping, or engagement measurement, would translate into sales or branding. But Hulu, more or less, appears to be saying (from a very limited snippet mind you), the future is in the ends, not the means. We care if it works for an advertiser, not how it works.

This sounds like a new media trying to prove itself, not a long-term measurement strategy. To my mind, the future is a combination of both. Hulu needs to show its value to advertisers, and it seems to be doing just that. However, no matter how strong my media crush on Hulu, what they are doing can be replicated. And as has been the history of the Internet, someone will inevitably do it better. They will need to know why certain things work better than others, if for no other reason than they can keep innovating.

There is a good argument that long form video advertising, much like mobile advertising, is currently successful not because of anything intrinsic about the media, but the novelty of the advertising. One of the research tasks for Hulu and the industry overall in the next year will be to control for novelty. What are the real drivers of effectiveness for online video advertising?

With all of this said, Hulu is on my list of media players to watch, not just from how big they are, but how they will lead in research going forward. They are big, and they will keep getting bigger this year, but their ability to monetize themselves will rely on their ability to explain what formats and positions work best, why those work and to differentially monetize that content based on those variables.

Good luck guys. Oh, and please make past episodes of Battlestar Galactica available, I need something to balance out all of that Grey’s Anatomy.