The Sale of Hulu Will Murder Hulu. (UPDATE: Hulu Gets a Reprieve?)

Commentary about business and finance.
July 12 2013 1:05 PM

The Death of Hulu. (Update: Or Maybe Not!)

By selling the online TV-streaming service, networks are going to kill what made it great.

Hulu acting CEO Andy Forssell attends the Hulu NY Upfront on April 30, 2013 in New York City.
Hulu acting CEO Andy Forssell attends the Hulu NY Upfront on April 30, 2013 in New York City

Photo by Brad Barket/Getty Images

Update, 3:30 p.m.: False alarm! Hulu has gotten an unexpected reprieve. Fox, NBCUniversal, and the Walt Disney Company (parent company of ABC) announced today that they are keeping their stakes in Hulu and also pumping an additional $750 million into the company.

Last bids for Hulu, the online television-streaming service, are due today. While we don’t yet know who the new owner will be (final bidders are thought to be DirecTV, AT&T, and perhaps TimeWarner Cable) or what the exact terms of sale will look like, it’s easy to predict who’s going to lose out: Hulu’s customers. That’s because what’s on the auction block is primarily Hulu’s technology, not its business model. But it’s the business model that makes Hulu great, and it’s all but certain to die in the aftermath of a sale, leaving us with a first rate video-streaming mechanism but not a first-rate video-streaming service.

The word disruptive is overused in the technology space, but you can’t understand Hulu without understanding the concept. Streaming video over broadband is disrupting the old broadcast and cable television paradigm. Which is to say it’s cheaper and in many ways more convenient to get your video content this way, and over time the quality of the product has improved: Netflix is producing original series such as House of Cards, NBA League Pass Broadband delivers live sports over the Internet, and there’s more original content on Slate V with every passing day.

Successful incumbents normally respond to this kind of situation by ignoring it. Figure that if your current business is successful, you don’t want to do anything to speed up the pace of change. That’s exactly what CBS (not coincidentally, the market leader in broadcast television) did, but the other three major networks broke with precedent and came together to launch Hulu and drive the pace of innovation forward.

My wife and I subscribe to Netflix streaming and Hulu Plus and don’t get cable television. Instead, I loyally watch my Bones and my Parks and Recreation via Hulu. Those viewing habits are exactly what an incumbent would typically fear. The initial philosophy of Hulu was to plow ahead unafraid: to embrace the idea that the future of television would not look like the past, and that the savviest networks would fight to own the future rather than delay it. Selling Hulu represents a complete abandonment of that vision.

When NBC, Fox, and ABC no longer own Hulu, then Hulu is no longer a means to own the future. At that point, the only reasonable recourse for the networks is going to be to keep their content safe and sound in traditional distribution channels. Existing deals won’t vanish overnight, but in the long run it makes very little sense for mainstream channels to license their content to a Hulu they don’t own. They very act of selling represents a stepping away from the ambition that made Hulu interesting and important.

The list of potential buyers also underscores Hulu’s boring, disappointing future. It’s not being sold to visionary venture capitalists or even to another media company. DirecTV and AT&T aren’t interested in owning and developing a great alternative to paid television service. They are paid television service. What they want is something akin to Comcast’s XfinityTV service, an add-on benefit for existing subscribers. This is the model television incumbents are comfortable with. HBO and ESPN both have popular and useful online services that are available exclusively to cable subscribers rather than sold as standalone products. Most of these products (I may have borrowed my dad’s Verizon FIOS password to watch Game of Thrones and some key NBA playoff games) are seriously flawed from a design standpoint, with clunky user interfaces and less-than-optimal reliability. 

Hulu, by contrast, was built with the soul and programming savvy of a tech company rather than a stodgy cable operator. It offers a clearly superior experience. That’s worth paying money for, even without Hulu’s programming edge.

But improving the user interfaces for add-on streaming services offered to cable and satellite TV subscribers is boring. Directly distributing new episodes of television shows to customers who don’t subscribe to pay TV packages was an exciting idea. Apparently too exciting for Hulu’s owners, who after bolding stepping into the disruption game, have decided to cash out and turn away. Consumers are going to lose out as the pace of progress slows.

Killing Hulu’s combination of quality programming and direct access to broadband subscribers isn’t going to halt transformation of the industry. The networks behind Hulu had a powerful edge in experience in terms of creating original programming, but it’s hardly insurmountable. By cutting their ties with Hulu, they’re simply leaving the field more open for Netflix, Amazon, and other players willing to think bolder. But it’ll probably take several years for anything new to be as good as Hulu has been. In the interim, we’ll all be taking a step back.


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