Everyone Loves Hulu...But Company Still Screwed

The early Hulu product reviews are in, and they’re almost all positive (NWS/GE).  And we can see why: It’s really slick (for example, here’s an embedded video).  Hulu’s Jason Kilar and company have clearly made many excellent product decisions.  Alas, products are not the same as companies, and before you take the raves to mean that Hulu-the-company is going to be a big winner, remember:

  • Mostly what reviewers are raving about is the ability to watch TV shows and movies, which Hulu doesn’t own.
  • Hulu doesn’t have exclusive online rights to these TV shows and movies: Its network partners already offer most (or all) of the same stuff online.  To learn exactly what exclusive rights Hulu does have, click here.
  • Hulu’s minimal exclusivity provisions last only two years.  Why?  Because Hulu exists to give its network owners what they want–control and an attractive revenue share.  The networks don’t want Hulu getting too powerful, lest they lose control and/or get a worse revenue share.  One way to ensure that you don’t lose control is to retain the ability to walk.
  • Hulu’s economics are lousy: Hulu bears all of the R&D and streaming costs (high) and gets only 20%-30% of the revenue (depending on whether a distribution partner is involved).  As video resolution goes up, Hulu’s economics will likely get worse.
  • Hulu’s value to users has already been compromised by the multiple competing interests involved: for example, only some TV shows are available, and others disappear after five weeks (the site’s owners must protect their core businesses!)
  • Hulu appears to have given up on the idea of becoming a destination site and is already in negotiations with YouTube about a distribution agreement (or so says YouTube; Jeff Zucker at NBC denies this; News Corp’s Chernin says it’s possible–WSJ).  Broad distribution is good for usage, but bad for Hulu’s economics and stand-alone value proposition.  If Hulu.com had been the only place to find this content online, it might have had a chance to become a destination site and keep more of the revenue.  Also, if Hulu does a deal with YouTube, YouTube will likely immediately become its largest source of traffic–and don’t think the folks at YouTube don’t know that.
  • Even Hulu’s network owners aren’t convinced it will be a viable company–and what’s more, they don’t care.  (Why not?  Because they’re getting what they want: control, distribution, an attractive revenue share, and an alternative to YouTube.)  In an interview with the New York Times, NBC president Jeff Zucker made his priorities clear: “At a minimum it’s another way for us to offer our content to users and get paid for it…If the site itself does well, that will be gravy on top of it.”

The Hulu Files:
Hulu’s Exclusivity and Business Model Explained
Why Hulu is Screwed, 1
Why Hulu is Screwed, 2: Bad Economics
analysing NBC’s defence of Hulu
CBS’s Quincy Smith: Hulu Strategy a Waste of Time/Money
VC Firm Goes Insane: Dumps $100 Million into Hulu

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