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Summary:

The portrait of Hulu that emerged from today’s Wall Street Journal is that of a hopelessly dysfunctional venture at odds with itself over it…

Jason Kilar

The portrait of Hulu that emerged from today’s Wall Street Journal is that of a hopelessly dysfunctional venture at odds with itself over its future direction. If it’s true as reported that CEO Jason Kilar has threatened to exit the company, it’s hard to believe he’s going to stay much longer given how difficult the circumstances are in which he finds himself.

Take your pick as to which of the revelations Kilar should find most dispiriting in WSJ’s devastating account of corporate infighting:

1. “Discussions have included such concerns as whether giving Hulu exclusive content restricts the owners unnecessarily.” The “owners” seem to have already registered their dissatisfaction on this front by making deals with Hulu competitors like Netflix (NSDQ: NFLX) for the same content. That’s understandable given they want to compare how their content will fare comparatively on each platform, but make no mistake: A Hulu without exclusive content has no competitive edge. If the venture’s own owners can’t figure out some slice of the pie should be Hulu’s and Hulu’s alone, they might as well nail an “Out of Business” sign to the homepage.

2. “News Corp (NSDQ: NWS). and Disney (NYSE: DIS) are also each mulling whether to wait two weeks or more after a TV episode airs before making it available free online.” Two weeks is an eternity when it comes to current episodes but how can you blame the content owners? Hulu has so much competition for catch-up viewing in the days immediately after broadcast, between multichannel video on demand and digital video recorders. This also explains why Disney made a deal with Netflix a few months ago for an unprecedented 15-day window for series from ABC and Disney Channel. This must be a test of whether viewers value content weeks after telecast premiere. If it works, this could be even more impactful for Netflix than Hulu.

3. When NBC Universal (NYSE: GE) recently gave new episodes of Saturday Night Live to Netflix, Mr. Kilar complained in a phone call with NBC [CEO Jeff] Zucker. Yet another example of how Netflix’s success has so thoroughly spooked the TV business that even Hulu’s owners will throw the venture under the bus in order not to risk miss jumping on the best bandwagon.

4. “Hulu’s owners are now considering management’s proposal to create a ‘virtual cable operator.'” Get in line behind Microsoft (NSDQ: MSFT), which is reportedly also considering such a strategy. The notion that Hulu could become some kind of bundle of linear and on-demand channels is such a head-scrambler that it’s hard to make of how compelling this could be, let alone if it’s possible. The devil is in the details here; a cheaper, most customizable bundle would be a hit with consumers, but believe that when you see it.

5. “Fox Broadcasting owner News Corp. and ABC owner Disney are contemplating pulling some free content from Hulu.” No clearer evidence needed that Hulu’s original business model is no longer useful to its owners. We’ve already seen how impactful it was when Viacom (NYSE: VIA) yanked Comedy Central hits The Daily Show and The Colbert Report; imagine how embarrassing it will be when ABC or Fox inevitably takes back a primetime hit.

It’s hard not to feel for Kilar. This guy seemed to have pulled off a miracle just a few short years ago by silencing all the naysayers who held that NBC Universal and News Corp. couldn’t possibly join forces to build a compelling digital content play. Kilar did just that, and the kudos that rained his way were well-deserved; Hulu was a triumph of engineering and marketing befitting an executive who saw how to perfect those disciplines from his Amazon (NSDQ: AMZN) days.

But as we’ve seen with MySpace, you can go from media darling to the doghouse brutally quickly. Hulu is in very serious trouble if even half of what is in today’s WSJ is true (and there’s no reason not to believe it 100%).

It must be an agonizing decision to leave behind years of work so painstakingly constructed, and so critically acclaimed (however briefly). But Kilar has clearly lost control of his creation, which gives him little reason to stick around much longer.

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  1. Content-Tech Guy Thursday, January 27, 2011

    Good analysis.

    The first hint that there would be trouble was when Peter Chernin left Fox. Chernin in many respects should be considered the father of Hulu, as the person who somehow bulldozed away dozens of hopelessly incompetent Fox and NBC execs so that a skilled executive like Kilar could actually do what he needed to do.

    I disagree that “A Hulu without exclusive content has no competitive edge.” On the contrary, Hulu’s competitive edge has always been a combination of new hit content AND user experience. The networks, with the partial exception of ABC, can’t build a product that comes close to matching Hulu. Younger viewers in particular greatly prefer Hulu to the broadcast network sites.

  2. Come on guys, this is a News Corp hit piece. Chase Carey et al want more money from Hulu and aren’t going to think twice about using the WSJ to take a proverbial baseball bat to Jason Kilar. How about a little skepticism next time….

  3. Media Executive Sunday, January 30, 2011

    Honestly, this is one of the most irresponsible articles Andrew could possibly write. It is an “analysis” of an article written by an actual journalist of a prestigious paper. And while the WSJ is aggressive in its reporting on this one, it is more or less picking up on the fact that we are in an evolving business that requires change and experimentation. Bottom line, Andrew, if you really want to do your homework here, why don’t you cover this with a broader view to put the challenges Hulu is facing into context.

    1. Exclusive content isn’t necessary to build a sustainable business. Netflix doesn’t have content exclusively. Nor does iTunes, Amazon, XBOX, Playstation, etc. Hulu isn’t even paying for their content but on a rev share basis. At least Netflix is ponying up meaningful cash to grow a massive library of material. Consider their streaming service for example – it is mostly library movies. It is true that Hulu will want to differentiate itself from other platforms, and it may choose to do so with lower cost investments in original programming to support Hulu Plus.

    2. A to week wait “is an eternity”? For live content, sure. For Glee, and other watercooler shows, probably. But the entire CBS roster can get held back for two weeks and nobody is going to care. Frankly, same can be said about most of the other networks – cable too. A new generation of viewers has a choice: pay nothing and maybe have to wait a couple weeks or, they can fork over $100+ per month for a cable/satellite subscription. The two week wait would save them over $1200 per year. And the reference to Disney’s deal with Netflix being a test…try this, again, Netflix pays a lot of money for programming. Why wouldn’t they offer the content up?

    3. This isn’t about throwing the Hulu venture under the bus. If Netflix or others are offering real money for content, the media companies have to consider it – or risk being sued by the content creators for blocking revenue streams and self dealing.

    4. This is my favorite of your absurdities. And to knock down your credibility further, you actually suggest there is a line behind Microsoft – let alone anyone. Again, we are in the midst of one of the most important media evolutions we have ever seen. Every company and its stakeholders must consider the opportunities for their businesses. If Hulu can transform to an operator, it has an opportunity to do so with far lesser costs of infrastructure than MSOs do. The business model is not yet clear, but if it can evolve to a place where both broadcasters and cable networks are feeding more of their content over, then Hulu’s owners would be pretty damn happy about that. It would only stand to increase the importance of the platform with viewers.

    5. Content is going to get pulled. That is a fact of life. MSOs pull down entire networks when they are in a fight. Embarrassing? Sure, I guess. Enough to make a CEO quit their job? Doubtful. The bottom line is that it is in the best interest of every network to determine business models, windowing, distribution partners and price structures that protect the long term value of their content and deliver the best experience for audiences possible.

    You sort of begin to close on a compliment to what Kilar has achieved, only to then slam him as a child who has lost their toy. Jason is a big boy and he is one of the most respected executives and visionaries running a media company right now. But he has to know that change is a constant and success will come for those that stay the course of innovation.

    Next time, Andrew, think about what you are writing in the context of our business.

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