Jumping Through Hoops with Hulu: Will Hollywood Studios Kill Their Offspring Again? - Tony Greenberg

Congratulations should go to News Corp Disney and NBC Universal for finally creating an online company so big and successful that tech industry giants may stumble over each other to acquire it Does Hulu or its buyer get the short stickAmazon Google Yahoo Dish Network and DirecTV appear willing to pay big bucks for Hulu reportedly up to 2 billion or more for the privilege of owning itGiven the painful history of Hollywood creating a salable online unit this is a major accomplishment It39s a more positive variant of what I like to call quotSuckCessquot The more quotsuccessfulquot a business unit becomes the more it sucks In this case the Hulu owners create real value but can39t stand to hold onto their baby because it might grow large enough to eat their existing businessHollywood39s unhappy dance with online video typically starts with overheated expectations and results in shattered ventures Here39s hoping they don39t screw the pooch againquotHulu has long been treated as the unloved bastard offspring of a doomed tryst among three aging TV giantsquot said Robert Tercek former digital head of Oprahcom and a veteran of several Los Angeles startup ventures quotJoint ventures are born to fail When the partners disagree management is powerless to take decisive action Ultimately no TV network has had the courage to commit 100 to a new venture that could cannibalize its legacy businessquotHulu is a decent and popular service that attracted more than 24 million unique views in July according to comScore which is roughly 10 less than the subscribers of decadesold HBO Hmm I wonder how consumption rates differ between the two Hulu generates material revenue from ads as well as subscription fees for its premium service Hulu Plus But which analyst or media firm has counted how much value has been applied in free broadcast time pushing Hulu to its owners39 constituenciesBut Hulu also represents much of what39s messy about quality video content on the Web Shelly Palmer host of Fox Television39s Shelly Palmer Digital Living quips quotHulu is a business model not a business Take away its quality network content and it ceases to have valuequotAssuming Hulu gets acquired it might end up like other ballyhooed Hollywood ventures a limping zombie with few compelling shows and an operation suspended in perpetual animation in a bid to recover acquisition costs That39s because Hollywood like the music industry is so busy protecting its old business models that it hasn39t figured out how to profitably nurture new ones in the online ecosystem The inherent conflicts with a site like Hulu have not been resolved even though it has blossomed beautifully Such problems have in the past scuttled video sites such as Movielink Screenblast and the UK39s KangarooThe big question about Hulu is what will be included with the sale and what39s left out Given all the challenges Hulu has had getting full content licenses even from its owners what will happen when Hollywood no longer has a stake in Hulu39s success Les Moonves even said quotAre they buying two years of programs for 2 billion I don39t knowquotWill a newly acquired Hulu come with rights to all the content it currently has Will the partners sell it to the weakest competitor or to whoever is willing to strike the richest dealOne analyst put it just right quotWhat matters is how long the content is locked up what the rules around it are and if they can change in the futurequot said Rich Greenfield of BTIG Research quotNobody is going to buy Hulu without answers to those questionsquotHulu reportedly has annual revenue trending to 500 million but a raft of competitors like Netflix now seeking similar content deals will challenge it And don39t rule out WalMart with its online video service Vudu It recently surged into third place in the moviedownload business A court ruling this month gave WalMart a major boost in its effort to muscle in on Netflix39s streaming subscribersOne possible hitch to the Hulu sale could be the insistence that viewers who are not cable or satellite TV customers would have to wait eight days to access a show after its initial broadcast If that39s part of the deal Hulu will sell for a handful of pennies on the dollar compared to what it is worth without that restrictionThere is a lot of risk and uncertainty involved here If Hulu is freed from restraints studios have so far imposed it could present other problems for Hollywood A freed Hulu might really give cable and satellite competitors a run for customers and their fees Does that create a new golden goose for Hollywood or just pluck the old oneAll of this is going on against a backdrop of complicated issues affecting video delivery As online video explodes pipeline providers like ATampampT are choking unlimited bandwidth with metered pricing They are creating an artificial bandwidth scarcity with new metered pricing plans even though the cost of delivery has plummeted These plans risk making Hulu Netflix YouTube and other online video services far less attractive right when consumers are embracing them heartily The fact that Comcast is leading the push to metered data services is an example of the conflict that exists between its cable and media assetsThrow in the festering fight over Net Neutrality where pipelines owners including Google will charge premium prices for preferential treatment of video delivery and you have increased the mess as I previously wrote And this doesn39t include the potential problems with mobile platforms and the booming popularity of smart phones and tablets for video useAll this feels like a rerun of the fate of online moviedownload service Movielink which five Hollywood studios owned long ago Its executives were flustered by interference from studio board members who repeatedly fought over pricing and special offersIs bundling licensed content and distributing it to consumers the wrong business model Larry Gerbrandt of Media Valuation Partners longtime media and advertising analyst asserts quotOver the top television is perfect for an explosion of long tail content niche content and foreign language content Netflix on steroids I recently spent some time with the folks at Google TV and they are starting with what is NOT available ANYWHERE such as all of the college sports that don39t get on broadcast or cable TV high school sports in major markets But it will take a Google Amazon or Yahoo to combine enough eyeballs across all the niche content to make it of interest to advertisers They still pay a premium for reach and you can39t change the fundamentals of TV advertising overnightquot VALUE OF Aamp160 Broadcast amp160 VIEWER Network Hulu amp160 Prime Time amp160 30sec unit CPM 1500 2500 30sec unit cost per viewer 002 003 Units per hour 22 4 Revenue per hour per viewer 033 010 CPM Cost per thousand amp160 amp160 amp160 amp160 amp160 The result was a hamstrung service that eventually faded out Movielink was acquired by Blockbuster in 2007 The chances of Hulu having a similar fate may not be quite the same or maybe it will be Despite creating a significant business that could project them toward a dominant position in the online video market will Hulu39s backers jump through hoops to keep it from being too successful That would be another tragic comedy You have to love HollywoodSo who will be the best group to own Hulu and how will consumers benefit I will tell you in my upcoming paper What do you thinkAs CEO of RampRate Sourcing Advisors and DeepStratTony Greenberg has been an idea generator transforming perceptions and industries since he was 17 Under Greenberg39s leadership for more than a decade RampRate has radically changed how IT services are purchased creating actionable datadriven sourcing information that has saved tens of millions of dollars and thousands of hours of headaches for major clients in entertainment Internet services finance media and video games DeepStrat a spinoff from RampRate39s strategic research arm focuses on growthadvisory services for companies in the digital media value chain particularly in mergers ampamp acquisitions rampups and funding plansamp160Read all Tony39s MediaBizBloggers commentaries at Only Time Buys TrustCheck us out on Facebook at MediaBizBloggerscomFollow our Twitter updates MediaBizBloggerThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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