The Financial Times reported today that Hulu, the joint venture video streaming site created by News Corp and NBC Universal, will soon pass YouTube in revenues. Hulu, which provides free, ad-supported streams of many popular television shows and movies, is available only to U.S. users and is expected to generate $70 million in 2008. YouTube is expected to have revenue of $100 million this year. Hulu does not traffic in user-generated content and has only six million users. YouTube has 83 million users in the U.S.

The implications for music are obvious. Monetizing the long tail through advertising is a challenge -- once you get beyond a certain level of decent popularity, the content is all but worthless to advertisers. If that content is licensed, the service provider will have to pay for each view. A percent-of-revenue deal would be better in this case since advertising revenue varies across content. If payouts to content owners are fixed, the less popular titles -- a sizable number in aggregate -- could easily result in a net loss after operating expenses and royalties. MediaMemo has more on the companies' differences in profit margin and operating margin.