Disney/ABC joins Hulu: What it Means

Today Disney and Hulu confirmed the long-running rumor that Disney would join News Corp. and NBC Universal as equity partners in the most successful professional video content site. According to the Wall Street Journal, Disney will take an equal share by ponying up a similar amount of cash that the prior equity investors put in. 

I applaud this move. It’s going to bring short-term and long-term benefits to the industry. This move:

• Creates needed short-term online advertising efficiency. I’ve recently written a report for Forrester about the struggles of online TV shows, including Hulu, when advertisers are cutting back every expense. By joining forces and standardizing the ad buying process, ad formatting, pricing, and so many other friction-laden processes, these major networks are going to keep some portion of ad revenue that might otherwise have been lost.
• Keeps YouTube on the professional video sidelines. YouTube had made a good effort to bolster its online TV show offerings with some CBS content and some links to ABC. But it hasn’t been enough to change what users expect from YouTube. (Tidbit: While YouTube accounts for nearly half of all video views, it only accounts for less than a fourth of video minutes because people go there for short clips.) With ABC clearly aligned with Hulu, it makes it less likely that any of these players will care to sustain YouTube’s online TV ambitions in the future.
• Makes it nearly impossible for CBS not to join. CBS has invested millions in its own effort and it may not want to give that up. But so did ABC — in fact, ABC was really the boldest of the networks in terms of technology investment and strategic energy. With the other 3 networks heading down the yellow brick road arm in arm, it makes sense for CBS to benefit from the same market power Hulu will now command.
• Sets up the cable industry for Hulu 2.0. If you’re paying attention, you have noticed that neither Hulu nor ABC have shown up on the Xbox, the Roku player, Blu-ray, Connected TV or any other over-the-top solution. This is because they are saving themselves for the cable industry. They don’t want to upset the cable industry, sure, but more importantly they want to position themselves to partner with cable to deliver Hulu 2.0 to the cable subscriber. Where Hulu 1.0 will remain free for online viewers, Hulu 2.0 will provide not just 4 episodes of a TV show, but all the seasons of the show to date, plus back seasons, and even new release movies. And all of this will be available online as well as on the TV. That experience will be available to premium cable subscribers and the revenue will be shared back to Hulu. 

What do you think it means? For content players, device makers, consumers?

Why Hulu is clashing with potential partners

Two news items from last week are worth commenting on in the same post:

1. Hulu insisted that Boxee pull its Hulu player from Boxee. For the un-nerdy, Boxee is the open-source media player software that I put on my Apple TV a few weeks back. Until last week, it allowed you to access Hulu online videos direct to the TV without the help of a PC. 

   The Boxee/Hulu experience is tremendously satisfying. Plus, it preserves all the advertising that Hulu needs to sustain itself. However, by making it super easy (some might say, convenient) to get online TV shows to the TV, Boxee is a threat to Hulu’s content partners, many of whom are still petrified about cannibalizing linear TV shows. So while those partners may be willing to support PC-based viewing, the moment Hulu is easily accessed on the TV, they get creeped out. Never mind that 5 million PCs in the US are currently connected to TVs for exactly this kind of experience — far more than AppleTV or Roku will ever have.
    

2. Hulu pulled its content from syndication partner TV.com. TV.com is a CBS-owned TV fan site that previously focused on chat rooms and clips, but as of a month ago announced an online TV player strategy designed to monetize its 5 million viewers more effectively. The secret sauce was access to Hulu content (Fox + NBC) as well as CBS content, delivered through a player experience that was remarkably Huluesque.

   Design infringement aside, it’s hard not to see this one as an effort by Hulu to persuade CBS to allow CBS content to join the Hulu experience. If it’s not such an effort, it should be. Hulu is eager to allow syndication partners like Fancast and IMDB to succeed, but it doesn’t really want to enable CBS to have all the benefits of Hulu content without having signed up to be an official part of the system. Seems fair. Honestly, the only reason CBS wouldn’t want to do this is it would mean acknowledging that its costly and time-consuming solo syndication efforts were not enough. 

What’s going on here: Hulu is getting more and more powerful every day. And not just because it managed to get Alec Baldwin to promote it during the Super Bowl. It’s because Hulu gives people the thing they want most: easy access to top TV shows. But with great power comes great responsibility, at least in the mind of TV execs who suspect that Hulu will eventually erode their TV business (which has been steadily eroding anyway, not on an overall basis, but on a per-show basis).

With ad dollars tightening in a recession — across the board, mind you, not just in online video — TV execs who never liked the idea of online video in the first place are going to claw their way back into prominence inside their companies and start arguing for more restraint. We’ll see more removals of TV shows like The Mentalist, more announcements like that from SciFi about postponing Hulu streaming of  Battlestar Galactica until 8 days after broadcast.

All of this is part of something I call the coming online video backlash. It’s going to take this whole year, and it’s going to inspire a lot of hasty moves on the part of TV executives to pull previously available content. And consumers are going to hate it.

I don’t envy Hulu’s position in this. It has to keep the lines of access open to the providers of top TV content, but it has to make good on its promise of serving viewers. So far, it has done a great job, but at some point, it’s going to be forced to do something that will begin to tarnish its brand. I don’t personally think the Boxee removal qualifies — only a few tens of thousands of us are nerdy enough to have hacked our Apple TVs — but sometime soon, somebody at Viacom or Fox or Sony Pictures will recall content that was previously available. Expect it to happen around sweeps weeks or the season finale weeks. It’s gonna get ugly.

Another case of disappearing content: Hulu cuts popular TV show

In an unusual — and very welcome — case of transparency, Hulu CEO Jason Kilar this week posted a frank blog entry apologizing for removing several seasons of episodes of It’s Always Sunny in Philadelphia. This FX Networks’ comedy was pulled down at the network’s request, presumably because it hopes to build some momentum for it’s official Sunny site where many episodes can still be seen. Hulu viewers complained, Hulu asked FX for an extension, and FX granted it. (It may help that FX and Hulu are both connected to Fox, which owns the former and has a hand in the latter). The episodes are now back on Hulu through the 25th of January.  

Two quick things to learn from this experience:

1 – We’re still making this up as we go along. FX, Hulu, and the viewers are all still very new to this idea of watching TV online. FX changed its mind half way through the season, Hulu is required to comply, and viewers are left picking up the pieces. Kilar’s approach — the frank apology — is as disarming as it is astute. That kind of transparency is helpful when negotiating the tricky bumps in a relationship. It doesn’t ultimately solve the problem, however, that content has been disappearing from sites for the last several months as content owners continue to change their minds about their strategies. 

2 – Consumers feel like they hold the ultimate trump card: piracy. If you read the comments from Hulu viewers on the Hulu blog post, you’ll find that most of them — although pleased with Kilar’s openness — are more than willing to threaten piracy as a solution to the problem. This is the same kind of response I get from commenters on my blog when these issues come up. It’s hard to say whether they represent most of us — as I posted before, we know that only 10% of US adults have ever pirated video via bittorrent. But we also know that online piracy will only get easier (and better) until eventually the US will have to contend with it they way some other markets (like Korea, China, etc.) already have. 

The comment I added on the Hulu blog is fairly direct: isn’t threatening piracy akin to telling your spouse that if he/she doesn’t want to be intimate with you that you’ll just sleep with someone else? I have a feeling it doesn’t encourage the behavior you really want! I have been in meetings with studio copyright lawyers when they hear of threats like that and it just blinds them to their more strategic alternatives. This may be one of the reasons that Netflix is succeeding in getting more and more content approved for its streaming service. The subscription model satisfies the studios’ desire to get paid and the consumer’s desire for a convenient, uninterrupted experience.

Is there a future Hulu subscription model hovering on the horizon? What do you think?

Cameron Death of NBC on stage saying good things

Welcome to Forrester’s Consumer Forum, in Dallas. We’re off to a bang, I have just finished my keynote speech a few minutes ago and now Cameron Death, VP of Digital Content at NBC Universal is speaking.

He put up a slide that I didn’t get to capture with my BlackBerry in time, but it showed the number of people who caught the Heroes season premiere. It was something like 24 million in broadcast (probably including DVRs), 8 million online, and just about 126,000 people in mobile and VOD. Just 126K! Online is hot, the rest is not. (Now if only Heroes had been as good as it was in season 1!).

He is so refreshingly open! My experience with TV execs is that they are very guarded. Perhaps because Cameron is an ex-Microsoft guy who has only been at NBC for a year, he is talking very openly about ratings, DVRs, and other challenges. And he’s very optimistic. Perhaps it’s because NBC is doing very well right now in the online space. NBC’s joint venture with Fox, Hulu.com, is a roaring hit. NBC is having a huge rush online thanks to Sarah Palin/Tina Fey. 

In fact, in a very surreal moment, Cameron read from today’s USA Today which was delivered to his hotel room here at the Gaylord Texan.  He quipped, “it’s interesting there are numbers in here, because I wasn’t given permission to share these numbers, so I’ll just quote USA Today!”

Not only did SNL get its largest TV audience (15 million) in 14 years for the October 18 broadcast with vice presidential candidate Sarah Palin watching Tina Fey impersonate her, but Palin-related SNL skits have been viewed more than 63 million times across the Web… – October 28 paper, Section D, page 1 (update note: originally had incomplete quote here, replaced it with full quote once I had a copy of the paper)

Cameron pointed out that this is clear evidence the digital channel matters, driving not only online activity that dwarfs the broadcasting viewing, but also lifts the broadcast viewing itself.

The forum is shaping up well. I’ll prepare a summary of my speech a little bit later, with some screen shots because there’s some good stuff in there worth talking about. If you want to follow the forum on Twitter, follow “forrester.” I’m also twittering at jmcquivey.