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Summary:

What the hell is going on at Hulu? Monday’s mysterious story in The Wall Street Journal portends significant changes in 2011 that may just b…

Hulu Plus on laptop / Macbook

What the hell is going on at Hulu? Monday’s mysterious story in The Wall Street Journal portends significant changes in 2011 that may just be scratching the surface of what’s to come for the service.

As “people familiar with the matter,” a journalistic euphemism for “stakeholders intent on leaking very specific information,” told WSJ, the initial public offering that was in the works is off the table, “at least for now.” On the table: new subscription plans to complement Hulu Plus.

These two developments beg to be decoded further. Let’s dive in.

The fact that Hulu lacks long-term rights to its programming was “one reason” offered for the IPO postponement. That smells like a red herring given this wasn’t exactly a surprise to NBC Universal (NYSE: GE), News Corp (NSDQ: NWS). and Disney (NYSE: DIS), primary stakeholders alongside Providence Equity Partners.

A likelier rationale: IPOs require consensus, and that’s not going to happen with this many cooks in the kitchen. There’s no shortage of issues the principals could be disagreeing on here, but let’s focus on the biggest question mark that has hovered over Hulu for about a year now: Comcast (NSDQ: CMCSA), which is about to take over NBCU’s stake, needs Hulu like a fish needs a bicycle.

A site that has built its fan base by offering TV episodes for free online is not of much use to a cable operator that wants to monetize that same window through VOD and TV Everywhere or Fancast or Xfinity or whatever cockamamie new name Comcast concocts next–all of which lack the brand power Hulu has built.

And so Comcast can’t simply pull the plug on Hulu. If it keeps its stake in the company, the best move is to steer it further in the direction of Hulu Plus, which has a subscription model and multiplatform presence that fits in with the cable operator’s drive toward authenticated viewing experiences.

And that may explain the second new development here, this talk of additional subscription models. Perhaps Hulu becomes the new face of TV Everywhere, with much less emphasis on the free catch-up programming opportunities on which Hulu made its name.

But that still leaves the matter of correcting one of Hulu Plus’ biggest problems: a skimpy selection. That’s why the WSJ tells us “the subscription offerings would entail Hulu securing rights to distribute content it doesn’t already have.” Hulu is on the hunt for more content, which could not be better news for content owners including some of Hulu’s stakeholders.

That means Hulu is not going to let Netflix (NSDQ: NFLX) or Google (NSDQ: GOOG) snap up all the content–the resulting bidding war will drive up the price of programming, perhaps to the point where digital doesn’t mean pennies anymore.

That’s not a bidding war Hulu necessarily wins. Which is just one of the reasons next year is going to be a make-or-break year for the service.

Could Hulu actually not exist at this time next year? It’s not like the new-media world hasn’t demonstrated a ferocity in recent years capable of killing even a great brand. But the irony is that Hulu’s old-media roots could be its saving grace: If there’s one thing a mogul never, ever does it’s walk away from a great brand.

  1. Andy, great analysis! This is something I’ve been saying for a while! I only see this as a win-win for many Cable providers – basically outsourcing OTT & Online on demand while possibly bringing in some revenue based on Revenue Share from Ads. The only problem in its way from many cable insiders is the amount of money that Comcast, et al have already put into their awful clunky TV Everywhere Initiatives. Big Bucks backed these initiatives and its always hard to let them go.

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  2. I see similarities to the early evolution of digital distribution in the music space. Starting around 2002, in response to illegal file-sharing, the major content owners (labels) tried to ban together in various configurations, such as Pressplay, MusicNet, and later, MySpace Music, in order to perpetuate the controlled access model they’d enjoyed for decades. Fast forward ten years and Hulu seems to suffer from many of the same problems: complex rights issues, intractable partner/owners, and most importantly, an insatiable public appetite for free alternatives. Meanwhile, Silicon Valley entities — in Hulu’s case Netflix and YouTube, in the record industry’s case Napster and iTunes — are waiting in the wings to disrupt.

    Here’s how this plays out: the competitor that understands consumer behavior and is best positioned to “delight” wins. Unfortunately, the major studios, and the canaries in the coal mine they’ve apparently ignored, their record label cousins, do not have a strong track record in this area. Almost seems better at this stage to disaggregate content creation from distribution, and approach the latter in a platform-agnostic manner. Negotiate equitable terms (see: river of nickels) and stop squandering shareholder value resisting the forces of creative destruction.

    Similarly, what unique expertise does Comcast, a physical pipeline business, bring to the D2C online space? Unless the cost of developing these competencies and systems internally

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  3. I see similarities to the early evolution of digital distribution in the music space. Starting around 2002, in response to illegal file-sharing, the major content owners (labels) tried to ban together in various configurations, such as Pressplay, MusicNet, and later, MySpace Music, in order to perpetuate the controlled access model they’d enjoyed for decades. Fast forward ten years and Hulu seems to suffer from many of the same problems: complex rights issues, intractable partner/owners, and most importantly, an insatiable public appetite for free alternatives. Meanwhile, Silicon Valley entities — in Hulu’s case Netflix and YouTube, in the record industry’s case Napster and iTunes — are waiting in the wings to disrupt.

    Here’s how this plays out: the competitor that understands consumer behavior and is best positioned to “delight” wins. Unfortunately, the major studios, and the canaries in the coal mine they’ve apparently ignored, their record label cousins, do not have a strong track record in this area. Almost seems better at this stage to disaggregate content creation from distribution, and approach the latter in a platform-agnostic manner. Negotiate equitable terms (see: river of nickels) and stop squandering shareholder value resisting the forces of creative destruction.

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  4. Comcast’s Xfinity play is very similar to Hulu. But as wisely stated in the article Hulu has a much stronger brand than Xfinity. Comcast should buy out the other investors in Hulu and use Hulu as their TV Everywhere play. Kill Xfinity and stop wasting money building a brand from scratch.

    Then if you subscribe to Comcast you can add Hulu as part of your package and suddenly have all of your content on every device. Hulu can’t pull premium content, Comcast can. Comcast has far more power when it comes to getting access to premium content than either Netflix or Google.

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  5. I wonder if a hulu & netflix partnership would be more compelling. I for one would pay for a subscription that got me both of those services, but hulu on it’s own is much too limited in breadth of content. I also agree with Tom, Comcast should just stop trying to build it’s own brand for streaming content and start working with some folks who already have winning formulas.

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  6. Nicole here, thank you for saying the truth about Comcast. I just want to add that Comcast still doesn’t have the ability to provide their customers with live TV everywhere. The ability to have live TV everywhere has already been done by DISH Network. For new and existing customers the Sling Adapter has been made available and allows access to not only live TV but also DVR recordings from any laptop or Smartphone from any where there’s high-speed internet. As a DISH Network employee I was a bit appalled the Comcast is making claims of achieving true TV everywhere.

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