Hulu, according to the Wall Street Journal, is rife with internal strife. It seems that there have been some meetings this week between the partners (NBC Universal, News Corp., and Disney) and the management of Hulu over the future of the company. At stake is nothing less than the company as a whole and that much-talked-about IPO that they were planning for last year but decided to wait on. If the owners can't decide on how to move forward with the content, how will they ever manage an IPO?
The problems, so we're told include things like the business model and the fear of the principals that the free online video the company offers is cutting into their bottom lines. Now you'll remember that I just accused News Corp of triple dipping – they run the content on the air and get ad money, they charge Hulu licensing fees for the content and then Hulu runs the content and gets ad money which News Corp then partakes in as a part owner. I don't see how that could possibly be cutting into the bottom line of any company but Hulu itself.
After all, Hulu is showing around 1.1 billion ads a month right now. That's both a lot of ads, and a lot of money. If they have an eCPM of $5, that's $5.5 million dollars a month, minimum or almost $70 million in annual revenue already. That's not even taking into account the money they're getting from Hulu Plus accounts. The company did report some $260M in revenue for 2010 though.
And yet, the principals can't come to agreement with the management as to how the company should move forward. Talking points, reportedly, include how much of the content should be made available free of charge. But nothing is ever free and the Hulu content that is not part of Hulu Plus is supposed to be showing almost twice as many ads as seen by Hulu Plus members. So, it's not free by any sense of the word. Hulu shows, on average per month, 47.1 ads per viewer. That's an advertisement every 4.75 minutes, often 15-30 seconds each according to my recent mathematical acrobatics.
The Wall Street Journal's Sam Schechner states that people close to the company say ABC and News Corp are thinking of removing some of their content from the company and I recently reported that NBCU is selling content to competitors like Netflix. Almost all of them have some form of content available on iTunes as well.
According to the WSJ article:
And in what would be a major shift in direction, Hulu management has discussed recasting Hulu as an online cable operator that would use the Web to send live TV channels and video-on-demand content to subscribers, say people familiar with the talks. The new service, which is still under discussion, would mimic the bundles of channels now sold by cable and satellite operators, the people said.
Hulu's managers say tumult is natural in such a fast-changing industry. "When we blaze trails, which is what Hulu is about, it takes time," said Jason Kilar, Hulu's chief executive, in an interview. "That is not for the faint of heart, and we understand that."
Hulu and its owners would be smart to get their ducks in a row. We are already seeing a mass migration to online video with some 172 million Americans watching an average of 14.5 hours a month online. Worldwide there are more than 1.5 billion online video viewers per month. That's a whole lot of eyeballs. On top of that add the fact that "Generation Z" (where do we go from there?) prefer to watch video online, watch TV less than 50% as much as other generations, spend 600% more time online and probably won't buy full-scale cable or satellite television service (they're just around 20 these days and are setting out on their own).
Last year already saw a move away from traditional cable and satellite with over 300,000 less households ponying up the cash to get the service.
According to the WSJ, Hulu's owners all agree that "consumer behavior is changing" toward more time on Internet-connected devices, said Mr. Kilar. "If you're a content owner, you're at risk of being left behind."
Well if that's the case then they need to impress that upon their owners or you're simply going to be left behind yourselves.
The problem is that all of the owners have other online endeavors and instead of consolidating it all in the partnership, they're finding that revenue and eyeballs are getting split. It's reported that FOX and NBC ad-sales execs claim Hulu is chewing up their revenue.
They might now have their day in the sun if content gets pulled from the online video service and brought back into the fold for use on their own sites instead of on Hulu. That could spell disaster for Hulu who is also struggling against territorial encroachment by other online video services like Netflix who now offer a streaming-only subscription.
Ultimately, what it looks like might happen, is that Hulu will become a subscription only service. That would then anchor it in the past as it would basically be similar to a cable provider, except that it would have a very limited number of channels to choose from. Doesn't sound like an ideal situation from the viewpoint of the online video viewer. It's basically like trading one old service for another, less robust one. Hulu is certainly going to need to find some way to survive into the future and subscription-only, doesn't seem like a viable option. How many of you would pay for content that you generally get for free via TV broadcasts?
Part of the dilemma for NBC Universal is that they have to give up any sort of management of Hulu so that they can be purchased by Comcast, it is a restriction placed on the deal by the government. That means they ultimately will need to make more deals with the likes of Netflix.
ABC and Disney have recently announced work on Disney Movies Online which will further limit content that will be accessible solely to Hulu and there are rumors that they also have an online subscription service in the works for the same content they gave to Hulu.
In the end, it seems like a conglomerate of competitors probably wasn't as stable a family unit as everyone was led to believe. If the companies do divorce then the child of that marriage will be the one that pays the price. Sort of like a mirror of actual life in that respect. Perhaps we'll see Hulu start acting out against the wishes of its parents. It certainly won't be able to stay out late, do drugs and get drunk, but it could start selling itself to the lowest bidders in order to get more content onto the service and secure its future. What I believe will need to happen is that NBCU, ABC and News Corp will need to divest their interests in the company and go their separate ways. That could be done via an IPO but the valuation of the IPO would be far lower than the expected $2B from last year if everyone knows that the partners are simply going to sell of their shares and become just another content provider to the service. That would also mean that Hulu would lose its unique position in the market, being part of multiple broadcasters who supply content to it.
I haven't even scratched the surface of the Hulu soap opera, they should make an original web series out of that, it would probably be a hit and generate more revenue for them. If you want to learn all about Hulu, the companies that own it and gain some really keen insights into it all, I suggest you read that full Wall Street Journal article by Sam Schechner, it's full of all sorts of information that even I didn't know.
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