We’ve argued in the past that Hulu–the NBC/News Corp (GE/NWS) video distribution site that is finally launching in a few days–is toast. Hulu optimists haven’t been a vocal bunch, but we’ve finally heard from some of them. So here’s our latest understanding of Hulu’s content-distribution deals with NBC and News Corp, as well as the Hulu business model.
There has been much confusion about what exclusive rights, if any, Hulu has with regard to NBC and News Corp content. Here is our latest understanding:
- NBC and News Corp have granted Hulu the exclusive right to syndicate streamed, ad-supported NBC and NWS TV entertainment video content through third-party syndication sites (such as AOL and MSN).
- The exception to this exclusivity is NBC.com and other NBC and News Corp network sites. NBC and News Corp will be free to stream as much of their content on their own sites as they want. Internet users will therefore be able to find the same content on NBC and News Corp sites they can find on Hulu and Hulu syndication partners. Hulu will not receive any revenue from NBC and News content downloaded through NBC and News sites.
- Hulu does have an exclusive right to cut third-party syndication deals involving the content. NBC, for example, cannot go cut a direct distribution deal with Joost or Veoh (or even YouTube).
- The protected content does not include movies, sports, or news video. Hulu has no exclusive rights to these types of TV content.
- Hulu’s exclusivity does not include download-to-own video. These will continue to be sold on iTunes, Amazon, and elsewhere.
- The exclusivity provision lasts about two years.
- Hulu’s other content partners (not NWS and NBC) are non-exclusive.
We have been sceptical that Hulu will receive enough of a revenue cut from its content and distribution partners to cover what we believe is a high cost structure. After conducting more research, we remain sceptical. It is not impossible that Hulu’s model will work, but we continue to think it will be challenging for the company to turn a profit and build a sustainable business. Here is our latest understanding
- Content partners keep 70% of gross ad revenue
- Distribution partners (third party syndication sites) keep 10%
- Hulu keeps either 20% or 30% depending on whether a distribution partner is involved.
NBC and News Corp’s sales forces will have first crack at selling ads on Hulu-streamed videos. The network sales forces will be able to sell by specific show and specific network (i.e., the high-priced ads). Hulu’s salesforce, meanwhile, will sell whatever inventory the network sales forces can’t. Hulu’s salesforce will only be allowed to sell by “genre,” not by specific network or show (to protect the network pricing model.
Although we are slightly more optimistic about Hulu’s chances to build a profitable, stand-alone business, we’re still sceptical. Hulu may eventually have some negotiating leverage as a third-party aggregator, but in the meantime, NBC and News Corp hold most of the content and most of the cards. The biggest problem? There are dozens of cooks in the Hulu kitchen–and not enough food.
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