Thursday, January 27, 2011

Netflix v Hulu -- A Tale of Two Online Video Services

Netflix and Hulu -- two of the top online premium content video services (television programming etc.). But, while both face significant impediments to future mass growth, their respective vastly different origins create some vastly different roadblocks.

Let's take Netflix first -- yesterday, Netflix announced massive quarterly subscriber growth and profitability as a result of the explosion of its online viewing service which is priced at $7.99 per month for unlimited viewing. I am one of those subscribers -- and I am definitely a fan of the ease and quality of that service -- except for one thing, the breadth of its content offerings. And, that's the problem. Much has been written about the fact that the major media companies are loathe to license their prime movies and television shows to Netflix out of understandable fear that Netflix's success will fuel a massive disruption of long-time business models. In their view, Netflix's success will be at their expense -- and $7.99 per month simply does not generate sufficient revenues to pay for the costs of media production and operation.

Competing pioneering online premium video service Hulu faces similar pressures of course -- a dearth of prime premium video content. But, Hulu's pressures are very different from Netflix's -- while Netflix is fiercely independent, Hulu suffers from a major identity crisis due to its major media and telecom underpinnings. News Corp/Fox, Disney and Comcast/NBC Universal are some of its investors. So, Hulu's existential question is "To License, or Not to License?" (premium content to the service to make it compelling). If one hand giveth the content, then the other hand taketh -- and, this is at the expense of cable operators (Comcast) and, again, the media companies' existing business models.

That is why, according to a feature article in today's Wall Street Journal, Hulu apparently is now seriously considering re-inventing itself into something very different from its maverick vision -- something more familiar -- i.e., an online cable company that would deliver "live TV channels and video on demand content to subscribers." The service, in other words, would "mimic the bundles of channels now sold by the cable and satellite operators." This existential crisis is apparently leading to continuing delays in Hulu's long-anticipated IPO.

So, while both Netflix and Hulu face the same mega-challenges of acquiring the content they need to make those services truly compelling, their overall approaches may soon dramatically diverge. And, Hulu's initial ground-breaking approach may soon look awfully familiar.

But, Netflix certainly ain't immune from significant identity-crisis changes either. So, while Netflix may desperately try to hold onto its "all you can eat" subscription model only, my prediction is that it will ultimately morph as well to include certain a la carte pay-per-view streaming for premium movies and television that it simply will not be able to license at any rates that would enable it to be long-term profitable and viable. The studios simply will not allow it.