Your Hulu Questions, Answered

INSERT DESCRIPTIONJason Kilar

Last week we solicited your questions for Jason Kilar, CEO of the online video site Hulu.com, which just may remake the television industry.

You asked a lot of very good questions, responding with a gusto which suggests that Freakonomics readers spend an awful lot of time watching TV, online or otherwise. And Kilar provides a lot of good and interesting answers, although he doesn’t spill the kind of secrets you all were hoping for. You’ll find his answers to readers’ questions are below; but first, his answers to three questions we put to him:

Question

Even just a year ago, and certainly two, Hulu was hardly an obvious choice to be the front-runner in the online TV space. What happened? Tell us about a few tipping points, or lucky breaks, or wondrous negotiations.

Answer

It is very understandable that so many journalists and respected bloggers felt that Hulu would have a very difficult time gaining traction. It is far more common for start-ups to fail, even without taking into account the unique dynamics that surrounded Hulu in the early days. But being the odd birds that we are at Hulu, we actually saw so many of these negatives as positives.

We had the luxury of starting with a proverbial clean sheet of paper, which allowed us to — among other things — create a culture that was ideally suited for the admittedly ambitious mission before us. That culture has enabled us to focus on our customers relentlessly and in ways that I believe are rather unique. Our culture gave us — and continues to give us — the courage to not settle until we’ve built a service that customers unabashedly love. And we’re sober about the fact that we still have a long way to go on this never-ending journey. We have been incredibly fortunate to have the support and conviction of leaders like Peter Chernin and Jeff Zucker in the mix. All this said, the Hulu team would be the first to say that we’re very much the recipients of good timing and good fortune. A leader I admire once said of his company’s execution: “50 percent of our success is good timing, 50 percent is good fortune, and the rest is brains.” Sounds about right for Hulu as well.

A final note is that Hulu’s original business plan did not include phrases like “and then Tina Fey will impersonate Sarah Palin and an online sensation will ensue.” We’re ever thankful for the wondrous and at times wacky things that helped get Hulu to this early point.

Question

Tell us a bit about ad revenues. I have read that you “stomp” YouTube in terms of revenue per user and per program — easy to believe — but how much money is coming in? With only a few ads per program, it is hard to imagine that revenues are very robust — especially considering that digital ad rates in other media (newspapers, e.g.) are dwarfed by their traditional counterparts.

Answer

We have never commented on financials specifically and I won’t be breaking that practice here. We are, however, very happy as an organization with where we are financially. I make these statements based on our actual performance against an aggressive plan. We’ve been fortunate to exceed our plan in 2008, in Q1 of 2009, and we’re currently ahead of plan at this point in Q2. From the very first day, we were maniacal in our belief that an opportunity existed to create an online video advertising service that delivered unusually strong value for advertisers while remaining true to important user principles. We’ve been fortunate in our ability to deliver the Hulu advertising service to over 200 advertisers and fortunate in that we are receiving fair compensation in return. While it is early days, I believe we are planting seeds that in the future could enable Hulu to generate, on a per-user basis, market-leading advertising revenue per minute of content consumed. We are very disciplined fiscally and are neurotic about the fact that we have to earn the right to serve our customers for the long term.

Question

Because a TV program on Hulu typically carries ads from just one sponsor, the branding seems to make a bigger impression than if that one sponsor buys one spot among many sponsors. What can you tell us about how this single-sponsor dynamic works, from both the user and advertiser ends?

Answer

We believe in the “less is more” approach when it comes to our advertising service. In this, we strive to deliver a user environment that is defined by its simplicity and sparse aesthetic. We believe this approach helps users to focus on the matter at hand, which is either the entertainment content or the advertising content. We also went to school on the golden age (from the late 1940’s to the mid 1960’s) of television’s approach to the amount of advertising units coupled with the programming. In 1959 for example, Alfred Hitchcock Presents carried four minutes of advertising units in that half-hour program. The ad load is quite a bit different in today’s current programs, where half-hour programs contain eight minutes of advertising units. As we’ve adopted a very retro “Hitchcock” approach at Hulu, we’re generating unusually high recall rates for advertisers’ brands and unusually high recall rates for advertisers’ messages. And we get paid by advertisers appropriately for that unusually high performance.

Question

What are your plans to expand into cable programming? Will new technologies be needed? Is there support/interest from the cable/satellite folks? — Bladt

Answer

We’ve made meaningful progress, but we have a long way to go. For context, Hulu’s mission is to offer the world’s premium content. That’s a lot of content, most of which has yet to make its way to the Hulu service. Thus far, we’ve grown from 2 to over 150 content partners, including some very strong cable brands and very strong cable programs. But we have so much more yet to do. We believe that Hulu can be a major part of the solution for cable, telco, and satellite companies seeking to offer their pay TV subscribers valuable online benefits.

Question

As a huge fan of Hulu and scripted television, I’m concerned that the revenue stream from internet video cannot support the budgets of non-reality network television. What is the future of big-budget original programming? — Michael

Answer

The vast majority of television program consumption occurs in the living room over traditional television sets. In fact, people are consuming more, not less, TV programming in the living room when compared to previous years, according to Nielsen. That reality is not going to be changing materially anytime soon. So questions about TV production budgets really need to be answered in the context of living- room economics, at least for the (what I think will be long) period of time when the vast majority of consumption occurs in the living room over traditional TV sets.

I believe that the biggest issue facing big-budget scripted television shows is how to find a large audience in the face of fragmented viewership in the living room. In 1950 when there were only three broadcast channels to choose from, it was a lot easier to attract 30 million people to a show in the living room. It is much tougher to attract 30 million people to a show in today’s world of hundreds of compelling cable channels. This is where I believe the internet can help, given that nearly everyone today spends material amounts of time on the internet each day. Hulu is increasingly helping shows connect to the broadest possible audiences given that we do so in ways that are unusually convenient and empowering for audiences. So a great show like It’s Always Sunny in Philadelphia can win the battle against fragmentation by leveraging Hulu. As I mentioned earlier, I believe we’re planting seeds at Hulu that will ultimately enable us to generate market-leading advertising revenue (per user per minute of content consumed). We are on a strong path economically, which means that content providers will be as well, given that Hulu is not successful unless our content providers are successful. I think Hulu is on a path to materially help the economic underpinnings of the content industry.

Question

My question is simple: when are you extending Hulu to the U.K.? I guess tying up local advertising deals might account for the delay? — Nick

Answer

We are focused on expanding internationally, but we don’t have any specific news to share other than that. When it comes to new markets for Hulu, the first focus is always to ensure that we can offer consumers a content lineup worthy of positive remark. Aggregating great content lineups is what we’re primarily focused on at the moment.

Question

Any plans to extend the availability of Hulu to TV sets, perhaps with a set-top box or something similar? That to me seems to be the final barrier to achieving massive growth that could make cable and satellite companies a thing of the past. — Dan Souther

Answer

We don’t discuss our product road map due to competitive considerations. I do think it is important, however, to recognize that we’re in business to serve our customers, where content owners are one of our three main customer sets (the other two being advertisers and users). Content owners derive significant value from their business relationships with cable and satellite companies. Specifically, a non-trivial portion of a consumer’s monthly payment for cable TV ends up going to the content owner. These pay TV revenues can at times account for 50 percent of a channel’s revenue (the balance being traditional advertising). It turns out that those pay-TV dollars help support production of some fantastic programs. As a team, Hulu respects that important economic reality in our content partners’ businesses. As I mentioned earlier, we also believe that Hulu can be a major part of the solution for cable, telco, and satellite companies seeking to offer their pay-TV subscribers valuable online benefits.

Question

A couple of months back, the content providers, who are not coincidentally your owners, ordered you to block the Boxee application from accessing your streams. Boxee is trying to take the battle to the content providers and make sure they “get it.” Why do you think the content providers would try to dissuade a large audience who would willingly watch ads from using their service, when they must at least have a passing inkling that it would drive users to torrent sites for commercial-free (and, might I add, higher-quality image and sound) versions of the shows? — Craig Stacey

Answer

This isn’t a situation of who gets it or who doesn’t get it. It is about content providers earning enough dollars such that they can cover the salaries of the actors and crew for the next episode of It’s Always Sunny in Philadelphia, for example. As I mentioned in a response earlier, our content providers’ ability to fund the creation of shows like It’s Always Sunny in Philadelphia is heavily influenced by the revenues they receive from their portion of consumers’ monthly cable TV bills. It’s a fact of the cable channel’s economic life. In the living room, advertising alone cannot support a show that attracts a few million viewers each week, which is the case for Sunny (compare that with American Idol, which attracts roughly 25 million viewers per airing on the Fox broadcast channel). Thus, cable channel content providers are naturally very careful to do what they can to help their shows find an audience while fighting piracy (put them on Hulu) but they also are careful not to put themselves at risk of not being able to fund the production of future episodes (and so they keep their shows from living room environments that promote themselves as substitutes to their analog cable TV business).

Question

How interested are network executives in the numbers that shows get on Hulu? Does that make any difference in whether or not a show gets renewed? I do almost all my TV watching there and was wondering how much networks value viewers like me vs. traditional viewers who sit down and watch the show at the scheduled time? — Dan

Answer

Their interest has grown substantially in the last six months. I think that is a good sign. The number of streams for a show on Hulu is starting to get weighed in the decision to renew a television show, largely because the numbers are starting to get interesting. Peter Rice at Fox Broadcast and John Landgraf at FX are very savvy on this topic, for example. Ben Silverman at NBC is focused on this space as well.

Question

What is the advantage of only showing, say, the most five recent episodes of a show? If Hulu already has had older episodes available, wouldn’t keeping them up allow new viewers more of a chance to get into a new TV show and old ones more time to catch up on and/or rewatch recent episodes? On a similar note, why are only select seasons of some older shows available? If Hulu is competing with DVD/iTunes sales of the same material, what’s the advantage in having any season up at all? — Allison

Answer

Great question. How does a content owner decide how many episodes and seasons to put up on Hulu? It is an imprecise science. Typically, it is a balance between the wins the content owner gets by being on Hulu (revenue, gaining incremental audience, addressing piracy) balanced by an estimate of opportunity costs. I am biased, of course, but I believe that the advantages of being on Hulu far outweigh any perceived opportunity costs. For people that are either rabid fans, abhor commercials, or are price insensitive, they will watch a program live, DVR it, purchase the commercial-free DVD, or buy the electronic download. But for the other 93+ percent of the population, any given TV show is an impulse business in that if you make it convenient for me to consume, I’ll have a much greater likelihood to consume it. If you don’t make it convenient for me to consume, I’ll pass on your TV show and do something else with my 22 minutes. A personal anecdote: I had never watched American Dad! before Hulu. Never heard of it in fact. But I’ve become a casual fan of American Dad! as a result of it being on Hulu and recommended alongside Family Guy. I’m not a rabid fan of American Dad! such that I’d buy a DVD box set or pay for a download. But given that it is convenient for me to watch via Hulu, I’ll follow it from time to time and in the process, the content owner earns revenue from my patronage via the advertising dollars.

Question

We have named a drink “Hulu.” It consists of gin and Mountain Dew (it’s the same color as the Hulu logo). Does Mr. Kilar object? — Levi

Answer

No objection. My only request is that your Hulu cocktail not be overdone with a little umbrella because, well, none of us are real fans of cocktail umbrellas.

Question

I first want to say that I love Hulu and feel that it is the best alternative to broadcast television out there. Given that, the one drawback is that most people want to watch television in their living room and not in front of a computer monitor. Netflix has had great success in teaming with Microsoft and the Xbox 360 for video streaming. Is that a possibility in Hulu’s future? — Sandeep

Answer

Thank you for the kind words about Hulu. Anything is possible in terms of Hulu’s future. That said, we don’t comment on the future regarding Hulu’s product road map. In lieu of an answer to your question, might I suggest enjoying a new drink that some other readers are planning to release?

Question

When will Hulu be available on my Blackberry? I work in the TV business and I see Blackberries everywhere, yet I can’t watch my own show on Hulu! — Matt

Answer

What are these so-called mobile devices of which you speak? Suffice it to say that Blackberries and many other mobile devices are well represented amongst the Hulu team. When we wrote down the mission of Hulu on a whiteboard here at our offices, we were very careful not to specify on what kinds of devices to which we’d deliver the Hulu service. We simply wanted to help people find and enjoy the world’s premium content when, where, and how they wanted it. Right now, we’re focused on the personal computer, and feel we’ve only scratched the surface in terms of that large opportunity. But please know that our mission certainly does not suggest that we will always be exclusively focused on the personal-computer environment.

Question

Why is the same ad repeated over for the same program? Are you considering more creative uses of the commercial break such as advertising with specific Hulu messaging, Hulu-centric campaigns, more internet-centric (and graphical) calls to actions, etc.? — Better_By_Design

Answer

In some cases, a company chooses to run the same creative ad more than once in a given episode. Fortunately, that is happening less and less, partly because we’re strongly counseling brands not to do that. For brands that would like to own a full episode stream for a given user, we’re working together with the advertising agency and the advertiser to ensure there’s enough varied advertising to do so. It takes time, but we’re making good progress. To your second question, we believe that our best inventions are yet to come in terms of the Hulu ad service. Today we offer a host of creative options, including, in some cases, the ability for users to choose which ad they’d like to see during a break. There is so much more to come from this side of our business. We’re very excited about what we believe is a massive opportunity to improve the advertising experience and effectiveness for both users and advertisers.

Question

How do you currently consume television programming? How did you watch TV two years ago? And how do you see yourself watching TV two years from now? — Rob

Answer

My television consumption behavior is highly unusual in that I consume the majority online via an iMac in my home office. Americans get more than 99 percent of their video content each day via the living room, so I truly am an odd bird. I watch certain things on a big plasma TV, particularly UNC basketball. I watch more premium content now than I did two years ago, when relatively little was streamed legally online. Time has always been in short supply for me, so if it is not extremely convenient to consume, I tend to pass. Two years from now I suspect that I’ll be watching more premium content because it will be more convenient to watch at that point. In the U.S., I suspect there may be 50 million minutes of idle time produced each day just by the people waiting in line at Starbucks. As a Hulu team, we’ve only scratched the surface in terms of helping people find and enjoy the world’s premium content when, where, and how they want it.

Question

What is the biggest hurdle Hulu faces today? Attracting more users? More programming? Resolving any legal issues? Attracting more advertising? Expanding to alternate revenue sources? — Bobby G

Answer

Our biggest hurdle is ensuring our Hulu team culture remains strong and, ideally, that we make it even stronger. Our culture is rooted in an unusually high-quality bar and an unmitigated obsession on behalf of our customers. Everything else flows from that.


kip

Wow, that was so spectacularly uninformative that I felt like I was reading an interview with a politician. Especially the complete dodging of the Boxee question.

I gathered that:
1) He can't comment on the future of Hulu
2) He has to keep users, advertisers, and content providers happy, even though all three parties have conflicting interests, so he can't really say anything meaningful.

Sean

In reference to Boxee,
I don't think he really answered the question. The main point of the question is:

"Why are content owners concerned about Boxee aggregating content when they still get the ad exposure?"

Boxee does not block ads. You still see the same ads you would if you were viewing via the Hulu site, so revenue is not an issue.

I personally think that the owners are concerned about a service that they have no control over. They are afraid that these open source advocates will usurp copy protection and next thing you know, you can get "30 Rock" on file sharing sites and no one will buy DVDs.

Quin

"Our culture is rooted in an unusually high-quality bar...."

I though "unusually high-quality bar[s]" went the way of the Dodo with the bursting of the Dot-com bubble when employers realized that alcohol on the job was not a great idea.

Uthor

I haven't used Hulu until Dollhouse came out. I like having an RSS feed informing me of when new episodes come out. I also hook my laptop up to my TV, so I watch the show on my "big" TV (32" TVs are so not big anymore).

I don't get TV reception (nor did I buy a digital converter box) and I don't have cable/satellite, so I like being able to watch TV programs easily. I just haven't dove into theHulu site to see what else they offer.

Jen

In early 2009, I took a pay cut, dropped cable (because I didn't watch enough to justify the charges) and purchased an AppleTV and installed Boxee. So I was as pissed off as anyone when Hulu dropped Boxee (and also, before then, when Boxee abruptly abandoned work on integrating Netflix instant downloads).

But I have to agree that response given here on the Boxee question does make some sense.

The content providers apparently depend upon the stream of revenue from cable to fund production of high-quality content. Apparently, ad revenues provide only marginal revenue - not enough to fund production.

If Hulu is easily viewable on a TV, as opposed to computer, regular folks may drop cable, leaving content providers with dramatically lower revenues. Then, we lose content (or are stuck with a diet of mostly cheap reality shows).

It costs something to produce these shows. People who buy cable are willing to pay for it, and in return they get an easy interface and high quality display, delivered to their TV. Hulu types (like myself) are not willing to pay for it, are willing to watch short ads and to put up with lower quality image/sound. We also forego the ability to record shows and must watch shows before they expire. And we are willing to use up bandwidth and a larger chunk of the data we pay our ISP for.

IF these things change, Hulu more closely resembles Cable, in terms of quality, ease of use, interface, program availability etc. When that happens, Hulu threatens to kill Cable (and with it, good programs).

All of that said, disabling Boxee is a poor solution because anyone who is willing to put up with the drawbacks of Hulu can hook up a computer directly to their TV and watch Hulu content. I think that content providers could be more creative in trying to identify revenue streams to support good programming.

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/b

"I personally think that the owners are concerned about a service that they have no control over. They are afraid that these open source advocates will usurp copy protection and next thing you know, you can get "30 Rock" on file sharing sites and no one will buy DVDs."

First: this has nothing to do with open source. Please do not sully that term with this. One thing has nothing to do with the other. This doesn't even have anything to do with copy protection.

But, aside from that technical point, you are so right that it has already happened. You can already get 30 Rock on file sharing sites, and furthermore, as the question noted, the downloads are usually of a much higher quality than you can get on Hulu (or a DVD).

Having said that, his answer did bring light to the other side of this story; sometimes, the content providers have deals that force them to crack down on something like Boxee. The most obvious example comes from the world of cable/satellite. To use Kilar's example, Fx bankrolls the production of "It's Always Sunny in Philadelphia." They get their money from a) commercials and b) cable/satellite. The cable/satellite companies pay to carry Fx, and as part of their fee, demand that Fx not sell their shows to a service available on Boxee or something similar, which the cable companies are afraid will drive them out of business.

The flip side of /that/ is that those deals are often incestuous and obsolete in light of the world that Hulu claims to inhabit. It really does boil down to a desire to exercise control, though where that desire is coming from isn't always clear. But really, what does anyone gain by deciding in advance which clip from last week's SNL is the one that will successfully cause an online sensation?

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Charlie V.

I was glad to see that what I think is the key to Hulu's success was covered early in this conversation: 15 or 30-second commercial per break.

I firmly believe that people will watch and, yes, even appreciate interesting advertising if they aren't overloaded with it. The countdown timer in the corner telling you how long the commercial break will last also a key part of this.

Hulu's model is a welcome change from the standard network television model of 42 minutes of content and 18 minutes of commercials per hour.

And network television is starting to catch on. Before a commercial break during FOX's "Fringe," an announcer tells the viewer that "Fringe will return in 90 seconds." Already, we're seeing shorter breaks whose duration is clearly explained ahead of time.

I hope this catches on. During an episode of "House" or "Lost" on broadcast TV, I would love to see a countdown timer in the corner telling me how much time is left in the commercial break.

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John

His answer isn't super-clear on Boxee, but it's in there if (and it's a big if!) you already know what to look for. Content providers get paid MORE from tv advertising than they do for Hulu advertising, so they're careful not to make it easy for those who want to watch show X on tv to do so without watching the ads from show X's tv broadcast.

In other words (I'm a little sleepy so I can't tell if that was clear or not :p) if a million people switch from watching the broadcast of It's Always Sunny... to watching the Hulu stream of it, the revenue lost from declining tv ad rates will be greater than the revenue gained from the Hulu money. That's what he means when he talks about shows not getting funding and so on...

~ John

PS You have to laugh at how the concern is strictly about the show getting funding and not the networks profiting. Of course both are true, but he only mentions the former. Running for office indeed. . .

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Sean

/b ,

I would be the last person to sully the good name of open source. It is my opinion that Open Source advocates are often in conflict with DRM and copy protection, as am I, and that the view that many content owners take is that open source = loss of control.

The answers that others have given on the Boxee debate are far clearer than anything that Mr. Kilar has said. But I don't think that Boxee is any more a cable/satellite killer than iTunes or Hulu. It is that Apple and Hulu are well defined players who can be controlled and that Boxee has undefined potential. Rather than embrace that, they have decided to ignore it.

CJ

My biggest Hulu complaint is the search functionality or the lack thereof. It is terrible. To find a clip of a show, you have to be so precise to return the relevant hit that you were looking for. It's so frustrating that I often refuse to use Hulu and find it elsewhere on the internet with a simple google search. To really be a game changer, they need to improve on this simple bit of functionality.

SA

I'm very disappointed that the question on international access was just skimmed over.

For people outside of the US, the reality is most American programming is simply inaccessible to us now that Hulu is getting more exclusive content.

Along with Mint, this is the most frustrating company to wait for while we knock on the door asking to be let in.

How many advertisers on Hulu do NOT have their products sold in Canada or the UK? Defies logic.

The alternative is we continue to find pirated methods of obtaining online content, so it's a lose-lose proposition.

Wesley

Interesting interview. I understand the Boxee concern, but at some point all of these companies are going to have to understand that cable/network television is on the decline. In a few years all content will be distributed over the internet, and if you want to get ahead, you will start working on doing it now. Not trying to hold onto outdated pricing and advertising solutions for cable.

Lastly, I would love to see some implementation of HULU on my VUDU Box. Ads and everything. I would watch it a lot.

Bobby G

Woot got a question on there! (although I thought the answer was kind of dull... thanks for answering, anyway)

As for the other responses, pretty much as I predicted. I have a friend that works for another internet broadcasting startup and so I'm a little familiar with the culture in those companies. It was pretty obvious to me that, despite all the curiosity and interest in Hulu's revenue stream, no valuable information would be provided. We know that Hulu has a revenue plan that is "very aggressive" and that they are beating it... but as someone who works in finance I'm well aware of the planning process... and it is even less of an issue in a company that is not publicly traded (like Hulu... I believe?). If I were to venture a guess I'm sure Hulu loses money but is gaining market share. Whether or not this means that Hulu will become a revenue generator is questionable, but it will certainly serve some purpose as a counter to illegal downloading. It's no surprise that the Hulu advertisments are shamelessly geared toward young males, who make up the substantial majority of illegal downloaders.

In regards to the question about international usage, I think Mr. Kilar only alluded to the real setback. He says that they want to have enough content to make the site a worthwhile visit, which I'm sure is completely true, however it doesn't answer the question... what is the delay? Well, specifically, it likely has to do with intellectual property rights and their applications and legal sustainability abroad. Are foreign countries willing to accept US-assigned intellectual property rights? With all the caveats and conditions? I'm sure that some television and film companies may be more lenient in their permissions for content abroad, but some (the ones with the most at stake, likely the big ones) might be hesitant. Until negotiations reach what must inevitably be a compromise, we won't see Hulu abroad.

At least... that's my opinion :)

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Michael Kay

Everyone is raving about Hulu these days. As an ex-patriot living abroad, I just have to take your word for it, as I am blocked from it in Argentina. I hope the international service is not so far away.

Tyler

I'm still unclear on the Boxee issue. Watching Hulu inside Boxee doesn't eliminate any of the ads. Furthermore, if a Boxee user wants to watch Hulu, all they have to do is exit Boxee and open a browser.

It's just 6 of one or half a dozen of another. TV's just not ready to admit that apps like Boxee are the next generation in home entertainment. They need to a take lesson from the music industry and embrace it now or get left out later.

Dan

I don't think he dodged the Boxee question at all. Content owners don't get as much revenue from a view on Hulu as the do from a view on cable TV. That's all.

/n

He dodged every single question.

The answer is of course that hulu will never come to TV and probably won't come to blackberry, and their only ideas are to try to sign up more shows and not offend the networks.

Although - most of the questions seemed to be pretty similar "When is hulu coming to X".

Dull. As someone noted earlier - like talking to a politician.

Justin B

Forget Blackberries and their tiny screens (the terrible Bold notwithstanding) - weren't there serious rumors a month ago that a Hulu app was due for the iPhone soon? Although it wouldn't make much sense in light of AT&T's recent blocking of SlingPlayer from using their network.

However, the most important part of his Q&A has been totally missed - he's a UNC basketball fan! 2008-09 National Champs!! Go Heels!

Jake

How often does Hulu post new episodes of the popular show, Family Guy?