Why Hulu is Screwed, Part 1 (GE, NWS)

We’ve been sceptical about News Corp / NBC JV Hulu for a while.  Recent news and our in-depth look into the Economics of Online Video only make us more so.  In Part 1 of “Why Hulu is Screwed,” we summarize our growing list of concerns.  Later today, in Part 2, we’ll analyse Hulu’s (bad) economic proposition and run some numbers on its hypothetical P&L.

Summary: Why Hulu is Screwed

*Two years too late: YouTube and niche sites already dominate global video.  In the history of the Internet, it has been extremely rare to see an entrenched, dominant brand surrender its lead without a major strategic misstep.  Even when companies blow it (AOL, Yahoo), they still maintain most of their market position.  (But what about Google, you say?   Google was one in a hundred thousand.  And we’ll go out on a limb here and posit that Hulu is no Google.)

*Joint ventures rarely work:
Too many egos in the kitchen, too many competing interests at stake.  Joint ventures have been tried since the dawn of Internet time.  Please let us know when you think of one that worked.

*Internet users don’t want to watch TV shows online:
Professionally produced video?  Yes. TV shows?  No.  This may change as real cable-bypass and IPTV options gain critical mass, but for now PC-based Internet users mostly want “snackable content.”

*Lack of buy-in from all (or even majority) of Big Media:  If Big Media was standing behind Hulu as a unified whole–and Hulu was the only place users could get Big Media content–the JV might have a chance (might).  Comments by CBS, Viacom, and Disney execs in recent days, however, demonstrate that Hulu can’t even win over Big Media’s support: The inherent JV problems are real (Moonves), the Hulu strategy is flawed (Quincy Smith), we just want to wait-and-see (Disney, Dauman).  Meanwhile, each big media company is rapidly pursuing multiple distribution options: iTunes, own sites, YouTube, etc.    Most companies are still using YouTube.  The one company that isn’t (Viacom) still hasn’t joined Hulu. 

*Lack of exclusivity.  Hulu and the Hulu network will clearly be only one of many places that users will be able to download or stream Big Media content.  This lack of exclusivity will 1) make it much harder for Hulu to gain traction, and 2) hurt its economics.

*Potentially awful economics.  This is the clincher: please see Part 2: “Hulu’s (Bad) Economics”

Economics of Online Video: One Tough Business
Economics of Online Video 2: Unit P&L Analysis
Economics of Online Video 3: $5 Net CPM = Keep Day Job
NBC/News YouTube Killer Has Name, Problems
Quincy Smith: Hulu Strategy a Waste of Time, Money