Thursday, May 14, 2009

The Schizophrenic World of Hulu

Hulu -- the fast-growing video destination site backed by media industry titans News Corp., NBC Universal, and now Walt Disney Co. -- is rapidly (and predictably) being caught up in an epic battle between (1) its own Internet TV mission statement and digital media ambitions on the one hand; and (2) the real world of traditional cable operator and TV content producer business models on the other.  Hulu's surprising success -- it is behind only YouTube in terms of Internet video viewership -- has downright shocked Hulu's own backers placed a bull's eye on its back.  In particular, cable operators are strong-arming content providers (the major television networks and others) NOT to give programming to Hulu and also to take down programming that they previously gave to Hulu.  And, Hulu's programming "take downs" have accelerated of late as a result.  (Click on this must-read article by Dawn Chmielewski from the Los Angeles Times.)

You see, the cable operators pay TV programmers (all cable networks) hundreds of millions of dollars for what they call "carriage" of that television programming.  Then, the cable operators and others charge us consumers significant subscription fees.  This traditional business model has been extremely lucrative for all involved.

Enter Hulu -- now, some of that TV programming has been made available to Hulu for free (i.e., no such multi-million carriage fees) -- and, as a result, to consumers for free.  And, voila -- many consumers feel they no longer need to pay their cable operator for cable TV (and instead think of their cable provider as giving them broadband to watch that TV on Hulu for free).  You can imagine, this is -- needless to say -- a bit disturbing for the cable operators and their traditional business model.  In the words of Hulu's own provocative TV ads from earlier this year, Hulu represents "an evil plot to destroy the world."  This is precisely how the cable operators consider Hulu.

So, the new buzz word -- i.e., proposed solution to the cable operators' and television programmers' dire dilemma -- is "authentication."  And, authentication is just another name for limited access to Hulu and other Internet video destination sites.  Think of authentication as a set of keys.  And, the cable operators are demanding that consumers only get these "keys" to watch TV programming on Hulu (and other video destination sites) if they can prove that they already are subscribers to their cable TV services.  This is the epic IPTV v. Internet TV battle that I have blogged about frequently.

As I have stated several times before, the cable operators (and others like them) will "win" this battle royale in the short-term.  The content providers (TV programmers) will accede to their demands, and Hulu will take down more and more content.  The result?  Hulu ultimately will become the shell of its current and former self.  Its success will be saddled by its own traditional media roots.

But, will this IPTV path ultimately carry the day?

Absolutely not.  Ultimately, content wants to be free (as in freely available, not necessarily free as in "do not pay") on the Internet.  And, new business models will emerge.  And, consumers ultimately will "pay" for watching TV programming on the Internet via a combination of ads, pay-for-download (ownership), and subscriptions.  

BUT, ultimately, no matter how seemingly fool-proof those keys may be, consumers will not be locked into cable operator IPTV walled gardens in the long-term.  Consumer demand ultimately will carry the day.  Accordingly, while the cable operators' motivations are understandable, they ultimately are unrealistic in the brave new world driven by the Internet.

Internet TV will absolutely carry the day ...