History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers. Hulu is not burdened by that legacy.
I can’t recommend the above post at Hulu enough. It’s a fantastic essay from Jason Kilar that responds to many of the questions and critiques that Hulu has been getting about its strategy and viability. Kilar makes a compelling case for how Hulu and similar services can serve customers, advertisers, and content owners simultaneously.
My one issue is that Kilar’s case is largely predicated on the notion that going forward it’s a customer’s-advertiser’s-content provider’s world and distributors just live in it. But with the Comcast-NBCU merger, it’s now also a world in which incumbent distributors own major content providers. Moreover, while Kilar makes a compelling numbers case for why advertising on Hulu is especially valuable and its subscription service particularly effective, Ryan Lawler pointed out recently that
Hulu pulled in more than $260 million in revenues last year, which is a success for any startup, but it’s a pittance in the world of broadcast television. To put things in perspective: Disney’s ABC broadcast network generated $1.3 billion in revenue in the third quarter alone. When broadcasters are pulling in billions, it’s difficult to see Hulu’s ad revenue split as a vital or material part of their business.
So we’ll see what happens. Basically for Hulu’s numbers to look good to content providers, they either have to grow by orders of magnitude, or the marginal utility of licensing content for cable distribution has to fall substantially. And cable providers are doing everything they can to make sure that doesn’t happen by leveraging their current advantages in the marketplace to keep shows from going online in terms they can’t control, as well as creating competing online video strategies such as TV Everywhere that privilege their existing business models. In the post quoted above, Lawler goes so far as to suggest that Hulu had best bite the bullet and transform itself into the premiere TV Everywhere service. In his own essay, Kilar defends Hulu’s current free-viewing model, but acknowledges that TV Everywhere will be a force going forward—all without explicitly ruling out the possibility that Hulu will be a part of it.
In short, we live in interesting times. The elephant in the room is piracy. If it becomes (or, for that matter, continues to be) expensive and inconvenient to get premium content legally online, BitTorrent clients and other illegal workarounds will only get increasingly user-friendly and even more ubiquitous than they already are, ultimately reducing the economic power and authority of cable companies in some of the same ways we saw happen to record companies in the last decade. Kilar is tactful not to explicitly point this out in his essay, but I think his point that “customers will ultimately make the decisions here” has this undercurrent.
[H/T Brian Irely; Image Credit: Jason Kilar With Screens]