Sunday, February 22, 2009

Hulu--get successful, shoot self in foot

It's a common story--start-up that initially isn't taken seriously by either its competitors or the industry in general, delivers a great product and turns the industry's perception around. In order to get distribution, the start-up cuts deals with some competitors, and makes it easy for others to redistribute its products. Once the start-up gets successful, however, those partners start to look more like competitors, and it starts pulling back on deals.

That's exactly what's happening with Hulu, the web video start-up that was derisively labeled "ClownCo" by executives at Google, only to become, in some ways at least, a more profitable and popular destination than Google's YouTube. Last week, however, Hulu started pulling the plug on distribution. The first was to take Hulu's content off of, a site that CBS purchased when it acquired CNET last year. The second was to take Hulu off of Boxee, an increasingly popular web video browser for Linux, OS X, AppleTV and Windows that turns PCs into set-top boxes. Hulu's distribution deal with was contractual, while there was no formal business arrangement between Hulu and Boxee.

In the case, Hulu merely stated that it had the contractual right to remove its videos, and was doing so. In Boxee's case, Hulu seemed to be more apologetic, stating that it withdrew its content at the request of its content partners. It's important to note that Hulu's largest owners, with equal control, are NBC Universal and News Corporation (Fox), and to my understanding, it would only take one partner to get Hulu to yank its content. I'm not going to speculate on which partner I think pulled the plug (NBC Universal), because they're both extremely well-run companies with top-notch management teams (and pigs can fly.)

What is happening is that Hulu's actions are getting people to reconsider The Pirate Bay and other sources for the content that's distributed by Hulu. These are unlicensed sources, and not a penny of revenue goes back to Hulu, its parent companies or other affiliated content providers. At precisely the time that Hulu is engaging in a promotional program involving commercials on NBC, Fox and both companies' cable outlets, it's taking actions that curtail Hulu's distribution and encourage piracy.

In Boxee's case. it's entirely possible that it was cable operators that forced Hulu's partners to take the action they did. To these operators, I say that taking Hulu off of Boxee and any other service will not in any way slow down the trend for consumers to drop their cable services. The only thing that will do that is an industry-wide switch to a reasonable a la carte pricing scheme, which will happen fairly close to the heat death of the universe.

In short, Hulu's actions are only going to hurt Hulu. They won't accomplish what either the content providers or the cable operators want--in fact, they'll accomplish the reverse. Joint ventures almost always suck massively--they're impossible to manage, because the participating partners almost always have divergent strategic goals and objectives. I chalk Hulu's behavior up to that.

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CableTechTalk said...

You refer to slowing down slow down "the trend for consumers to drop their cable services." Where is this trend? I'm not aware that cable subscription rates are fluctuating at abnormal rates; I think growth is flat right now, but that's hardly surprising given current conditions.

It also appears that TV viewing is still greater than that for online video.

Len Feldman said...

Where do I begin? First, the Nielsen report that you referred to talks about viewing video on "three screens." It says absolutely nothing about cable in particular vs. IPTV, satellite or broadcast.

Next, the article contains the following quote: "Viewers appear to be choosing the best screen available for their video consumption, weighing a variety of factors, including convenience, quality and access," Nielsen vice chair Susan Whiting said, in a statement. "It is clear that TV remains the main vehicle for viewing video, although online and mobile platforms are an increasingly important complement to live home-based television." That's my whole point: Cable (and potentially satellite, IPTV and broadcast) operators are concerned that services such as Hulu, which make thousands of hours of VOD programming available to viewers over the Internet, don't want to see that same programming available on the "big screen" without them getting a cut of advertising and/or subscriber revenues. The more online video that gets to the big screen, the less potential revenue is available to operators.

Finally, as to your point that more people watch video on television than on computers, there are far more people capable of receiving television by cable, satellite, IPTV and broadcast than by high-speed Internet, so it's pretty obvious.