How Hulu became the season's hit

(Fortune Magazine) -- Saturday Night Live isn't the only brand boosted by Tina Fey's Sarah Palin routines. If you're one of the millions who's watched those skits online within a week of their original broadcast, chances are you've seen them at Hulu.com. It's a big moment for the free video site.

Backed by News Corp. (NWS, Fortune 500) and NBC Universal, the "YouTube killer" launched a year ago with ten advertisers, scant content, and a lot of skepticism. But the site has grown fast, and in September, viewers watched Hulu clips 142 million times, a 32% jump from August.

Hulu has two things going for it: copious professionally produced content and stellar technology. CEO Jason Kilar's dealmaking with studios and networks has given the site a growing lode of stuff people want to watch - NBC's SNL, of course, plus Comedy Central's The Daily Show, Fox's House, and hundreds of other shows and movies.

As for tech advantages, Hulu uses one of the best videoplayers on the web. The picture is superb, as is the search function - type in "Angelina Jolie," and you'll get clips based on image recognition. Also much improved: antipiracy measures, which keep hit shows off YouTube in the crucial days after they first air and send viewers to Hulu instead.

YouTube, whose users watched videos 5.4 billion times in September, still dwarfs Hulu. But Hulu is winning over Madison Avenue. "Advertisers prefer Hulu over some of the user-generated video sites because it's approved original content," says Margaret Clerkin, co-lead of WPP's Invention Group.

Media buyers pay more to reach 1,000 viewers on Hulu than to reach the same number on primetime TV. Slight hitch: Hulu keeps only 30 cents of every dollar of advertising it sells; the rest goes to the networks and the shows' producers. The site won't be profitable until it gets a bigger share of those ad bucks. But with more than $100 million in funding from its backers, Hulu has some time to figure that out.