This episode follows news that Hulu was postponing an IPO, possibly because it had been unable to secure long-term content syndication agreements with its partners and owners.
All this is par for the course, says one industry expert, Scott Kurnit.
The founder of About.com and, most recently, AdKeeper, Kurnit argues that Hulu’s corporate structure–a joint venture among competitors–dooms it to failure.
Kurnit knows of what he speaks: He has worked in four joint ventures over the course of his career:
- Warner and American Express at Qube (Warner/Amex Cable);
- Warner and Viacom at Showtime;
- IBM and Sears at Prodigy, and
- News Corp. and MCI at iGuide
Based on this experience, Scott thinks the JV structure is fatally flawed.
We asked him to elaborate in the Q&A below.
BI: So, Hulu is screwed?
KURNIT: Hulu is an awesome service. Jason and his team should be applauded for creating something special and everyone involved should be very proud that the JV has performed so well, so far. That said, the majority of JVs have a relatively short half-life.
Everyone’s all excited at the closing dinner. But between the appetizers and dessert, you start to see the future cracks. The very reason for a joint venture is that something must be missing from each parent’s portfolio. In the case of Hulu, it was scale. In the case of iGuide (the JV I ran for News Corp. and MCI), it was product and distribution. News Corp. had the product and MCI had the distribution with 23 million customers. Most of the time, you either have companies that are natural rivals – like NBC and News Corp. in the case of Hulu, or you have companies that don’t understand a whit about their partner’s culture or industry, like MCI and News Corp.Is there still time for Hulu? I hope so.
BI: Why don’t joint ventures work?
KURNIT: Let me count the ways:
1. Joint ventures are set up to fly on their own, but they are made up of people with conflicting interests. The boards of the two or three parents are naturally competing with the offspring. The parents logically put board members in place who know the most about the new service. The problem is that these very same people are usually working on something competitive back at the mother ship. Their budgets are starved while the baby, the shiny bauble, gets the attention. How do you think it feels to be in charge of XYZ’s video operation while sitting at the board meeting of Hulu, which is kicking your butt? That smile at the meeting is just so you don’t cut yourself with the knife you’re hiding under the conference table.
2. The guys who set up the Joint Venture, who truly believed in it, often aren’t around when the trouble starts. Peter Chernin and Jeff Zucker are smart guys who planned for Hulu’s pitfalls. Peter was at News Corp. when iGuide blew up. So, he’s not only smart – AND experienced – but, he and Jeff are no longer at the table… letting the underlings show their knives. Add ABC as a latecomer without the core vision, and Comcast who’s not even allowed to participate, and it’s easy to see how things can unravel pretty quickly.
3. JVs are set up since the parents are missing something they’d need to do it themselves. Prodigy had IBM, which knew nothing about consumers and Sears, which knew nothing about computing. When the business model of selling two items per month became one item every two years… oh boy… trouble in River City. When IBM insisted on riding on top of DOS while AOL rode on top of windows… oh boy… big trouble in Dodge. When @Home started, the Internet seemed like rocket science to the cable company backers. After it got deployed and they saw that it was not so hard… it’s the natural thing for the individuals at the table to say, “Heck, *I* [2TMB1] can do that!” and it’s the natural inclination for the companies involved to say, “why should we let this entity make money which should all flow back to us?” Poof.
BI: Given your experience with joint ventures, is there anything that can be done that would make them work?
KURNIT: They work great on day one… and as we’ve seen with Hulu, even for years. Unfortunately they unwind based on changing of the guard or the needs and interests of the parents. The key is to get them out of the nest, let them fly on their own before the parents get bored or worse, choose to eat their young.
I tried desperately at News/MCI to let either parent fire me at will but required that they agree on the replacement. They wouldn’t do it. Safer for me, for sure, but not in the best interests of the venture. At Prodigy, the CEO should have been tossed long before his day of reckoning, but it took both parents to do it. He was a Sears guy, so to toss him would let an IBM guy have the seat. So, it was better to keep the wrong guy too long than to let the other partner take his turn driving the business. That kind of issue runs through everything. So, JVs can work, but not for long.
The key is to set them up and get out of the way. They need to take the friction of varied interests and slow, awkward, self-interested decision making out of the equation. Also, three or four partners are always better than two since more voices at the table make everyone say, “Hell, you guys are running this thing day in and out so you decide what’s best.” That’s good news in Hulu’s case. It was the case for USA network at the dawn of cable. Kay Koplovitz was strong willed and held the partners at bay until USA could find singular ownership at Universal, then NBC and now Comcast. Switching owners is never easy, but easier than having a gaggle of competing owners trying to get the venture to meet the individual needs of the parents.
BI: If JVs never work, why do companies keep doing them?
KURNIT: The temptation is just too great. Companies see big markets they can’t tackle alone so everyone puts on their rose coloured glasses, assumes they are different and they can make it fly. And they do… for a while. The trick is to help at the beginning and then get out of the way. Also, most of the people who set them up have never done it before and it does seem so logical at 30,000 feet.
BI: Why did Providence Equity invest $100 million in Hulu? Smoking something?
KURNIT: These are really smart people, so I can only guess that they had the following in mind.
1. Exciting, huge market with first mover advantage and great scale.
2. That they could be the rational, independent voice at the table.
3. That they’d be able to make the venture truly standalone before the parentally vested interests pulled the exclusive product or switched strategies.
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