Hulu is doomed, but that’s a good thing

7 11 2009

Hulu is a great idea. Offering free content on the Internet is the only way to compete with, well, free video content on YouTube and available through pirating Web site. Unfortunately, whereas Hulu was positioned to be the Trojan Horse for network television on the Internet, it will instead be the scapegoat for the networks’ failures.

In and All Thing D article, outgoing chief of CBS Digital, Quincy Smith said,

“I don’t hate Hulu. Hulu’s world-class video viewing. What I don’t understand is, why license all that content to something that works that well, that seamlessly, yet–without the economic model around it?”

Smith is mistaken if he thinks the free-for-all market opportunities on the Internet will match that of television. While the Internet provides networks access to broader audiences, it presents a different market where consumers have real buying power in the form of access and choice. Not all products have equal success in different markets anyway. What makes Apple successful in the U.S., doesn’t necessarily make it successful in Europe or Asia. Television networks should recognize that they don’t have an upper-hand on the Internet because they can’t limit access to content the way they do with broadcast scheduling. Hulu is a $700 million market, but television comes in at $120 billion. OK. Maybe $700 million isn’t so bad on the Internet, and the networks should accept that.

Of course, they don’t. They’re greed-driven and blind to the differences between broadcast television and Internet markets.

Here’s a dumb idea (via Chase Carey, chief operating officer of News Corp.) for how to make Hulu more profitable: Go with a mix of paid and free content. Yeah, ask The New York Times about how that worked out. It didn’t. People will continue to visit Hulu, but they’ll just watch the free stuff. At least the Times had an edge in value with its paid content being intellectual property (columns) and access to unique news reporting. Hulu would just be charging for people to watch reruns.

Hulu’s model will likely change to some kind of paid service, because Wall Street said so, and will (unfortunately) fail for two reasons:

Legacy – People who use Hulu today haven’t had to pay before and they like that. Few will pay if they’re asked to because they’re die-hard fans of particular programming or are moralists. The rest will move to a competing station’s free content (Where’s HBO at?) or to the pirated content they probably already consumed before Hulu.

Everyone remembers Napster, right? That little site single-handedly changed the music economy (albeit illegally), and paved the way for online retailers like iTunes to top sales over big box brick-and-mortar stores. Now, iTunes is a paid service, but it started that way. Napster tried to transition from a pirating service to a legitimate paid service and has barely managed to stay afloat as a business or in consumer mindshare. A new service (maybe iTunes itself) can enter the market and dominate television with a paid model, but no free service can make the transition to a paid service and have success. Hulu won’t. Consumers don’t have an appetite for that.

People won’t pay double – You know what consumers really don’t have an appetite for? Paying for the same service twice. Yuck. A lot of people who consume content on Hulu probably already have at least a basic cable subscription. They probably access Hulu to watch a missed episode or pass the time on lunch breaks. These people will not pay to watch NBC of Fox twice over. It’s uneconomical from a consumer perspective. They’ll just be more punctual with DVR scheduling.

It’s too bad that Hulu is doomed to fail because it’s a fine a corporate media service. Its success attracting viewers may actually be reasonable by Internet monetization standards. Unfortunately, the network executives have their broadcast television goggles on and with their false expectations will change Hulu in the direction of its demise.

That’s a good thing though. It took Napster to get the music industry to change (or crash, depending on who you ask), and Hulu will be the scapegoat for networks and sacrificial lamb for a reasonable, mainstream Internet television service.

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One response

11 01 2010
Melissa Bird-Vogel

Great blog post! thanks – enjoyed reading and learned something, plus liked your POV on it.

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