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Surprise! Online TV is billion-dollar biz

By David Goldman, staff writer

NEW YORK (CNNMoney) -- As broadcasters and television networks try to figure out their Internet strategy, the TV content that actually is online is generating quite a pretty penny.

Online TV brought in $1.6 billion last year, up 34% from 2009, according to a data analysis by IHS. The largest contributor to that growth was a 65% rise in Internet TV advertising, which reached $719 million in 2010.

That's surprising, since Big Media has often been reluctant to throw its content online, thinking it would jeopardize their lucrative deals with cable providers. And the number of online television streams with ads rose by a measly 10% last year.

But some analysts say that the big players in online TV are actually making out pretty well.

"Even in this conflicted market, revenue was up, thanks to the proactive attitude of a handful of players, including Hulu and the CW Television Network, which have managed to expand revenue even as consumption growth has leveled out," said Dan Cryan, head broadband media analyst at IHS.

Hulu says it pocketed more than $200 million in ad revenue in 2010, doubling its 2009 intake. Though online TV views on Hulu rose just 10%, the company generated more revenue per stream thanks to greater advertiser interest in the Internet television market.

The TV website, which is co-owned by The Walt Disney Co. (DIS, Fortune 500), News Corp. (NWS, Fortune 500) and NBC Universal and rumored to be exploring the possibility of an initial public offering, led all online Internet video properties in terms of ads viewed with 1.2 billion last month, according to comScore.

Hulu displays a whopping 47 ads per viewer per month -- not too shabby, considering the next biggest video ad player shows just 14 ads per month to its viewers.

Another success story of 2010 is the online TV site of the CW, a network partially owned by CNNMoney's parent Time Warner (TWX, Fortune 500). That website grew by 50% last year, but its revenue soared a whopping 300% to $16.5 million. That's because it sold 23 ads per show, on average, IHS noted.

With those kinds of numbers, broadcasters could lend greater support to a business that is potentially a much larger source of revenue, Cryan said. TV networks could do more to promote on air the fact that their shows can be viewed online.

"Consequently, broadcasters in the United States are at risk of ceding territory to Netflix (NFLX) as the go-to destination for television on the Internet," Cryan noted.

Meanwhile, TV networks are hedging their bets by partnering with Apple and selling ad-free, digital versions of their shows on iTunes. That gets them an additional source of revenue without giving it away for "free." To top of page

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