Markets

As Online Video Evolves, Hulu Trips Over Its Own Toes

By Catharine Taylor

Updated on: January 28, 2011 / 9:25 AM EST / MoneyWatch

Somehow, it wasn't surprising to see a headline in The Wall Street Journal titled, "Hulu Reworks Its Script as Digital Change Hits TV." The story detailed what has been more and more obvious lately: that, despite Hulu's popularity with consumers, the cross-currents from its three business partners -- Walt Disney/ABC, News Corp. and NBC Universal -- are simply too much for Hulu to build a coherent business model in a constantly shifting marketplace.

It goes to show how dense Hulu's difficulties are that the story doesn't isolate one problem, but instead lists them -- and they run the gamut. They include:

That Fox and ABC are thinking about pulling some content from Hulu.
That all three of the partners have sold content to Netflix, but also are in the market to sell it to Apple and Microsoft for their streaming services (notably, not Google).
That CEO Jason Kilar threatened to quit over the pricing of the Hulu Plus offering, a subscription-based version of Hulu that was originally priced higher than Netflix, which offers more content. (Everyone compromised at $7.99/month, though Kilar wanted $4.99.)
That Hulu is considering being an online cable operator, streaming similar offering to what viewers get from their local MSO.
That since NBC Universal is becoming a passive investor in Hulu as of today because of the Comcast merger, it will be forced, per the FCC, to distribute content elsewhere.

And that doesn't even get into the fact that all of the partners have reserved ad inventory to sell themselves on the site instead of letting Hulu sell it ... or that a Hulu IPO was shelved months ago in favor of getting financing elsewhere ... or that the ad load on Hulu isn't nearly enough to support the programming as audiences consume more video content online.

There should be a litmus test of how many problems it takes to sink a joint venture. There isn't, but somehow, Hulu still passes the test. The irony is that three of the big four broadcast nets (excepting BNET's corporate overlord, CBS) got into Hulu three years ago to ward off threats to broadcast TV's business model. But it hasn't made much difference; the market is moving almost independently from the way some of its biggest content producers should move.

Now, Hulu's partners find themselves with a multitude of distribution channels -- ranging from their own Web sites to the 800-lb. gorilla in the room, Netflix -- and a need, at least for now, to act jointly on how the online video market will work out because of their stakes in Hulu. As much as you may love the site, this isn't going to work out. It's the hard, sad truth.