Hulu has gotten YouTube to take note after LiveRail released the “State of the Industry Report” report announcing that Hulu sold out its advertising inventory in the third quarter of last year. The report showed that Hulu, an online video site that can be viewed only in the U.S., is running a far more profitable operation in comparison to their larger, Google-owned rival YouTube. Estimates have Hulu earning US$90 million in its first year.

Hulu shows only high quality original programming (no user-generated video uploads there), and has signed licensing deals with a number of broadcasters and film studios to deliver videos to the masses. LiveRail says Hulu can sell advertising more easily because its content is both less risky and just better.

The YouTube model allows much more freedom to accumulate content and is clearly more popular with more than 4 billion videos compared to Hulu’s 88 million, but it still struggles to deliver profitability. Recent YouTube initiatives include pop-up ads in videos, but only time will tell if they’ll help Google start earning real profits on its video baby.

Hulu’s major handicap remains its geographic isolation, however. And recent court rulings appear to be making it less onerous on sites such as YouTube to police copyrighted content.