Hulu.com is a fairly simple concept. In 2007 NBC and FOX created Hulu.com to broadcast television content over the internet. In April of 2009 Disney’s ABC unit bought into the joint venture with a 27% stake. The concept is pretty simple – push TV shows over the Internet. But the reason why these historic competitors would work together and the ramifications it will have on both the television industry and the Internet are profound. Let’s dig in a bit.
The first thing we have to understand is who the players are and how they make money. I’ve created this over simplified chart to help illustrate:
Major Players
Cable Companies, Internet Service Providers, and Cell Phone companies make their money by selling subscriptions to consumers to gain access to content. These companies have saturated the US market — essentially everyone has cable, cell phones, and internet access. The market is not going to grow. So the only way they can grow is to add new services to their offering. But there is only so much the consumer is willing to pay.
Content Producers like Disney and Fox make their money by selling advertising placement on their content. (This is oversimplified but provides the picture we need to understand what’s going on). The more content they get in front of the consumer the more money they make. The bigger the audience the more they can charge for the advertising spots.
Hulu brings that content directly to the consumer through the internet. Allowing NBC, FOX, and Disney to create a bigger audeince for their content. But since the Internet providers charge a flat rate for internet they don’t make any more money. In fact, since the Cable companies are also the Internet providers they are concerned that consumers could cancel their Cable subscriptions and just watch TV over their internet connection — reducing the consumers monthly subscription fee. AND THAT IS EXACTLY WHAT IS GOING TO HAPPEN AND WHY HULU IS A HUGE PARADIGM SHIFT!
Once you can watch TV over the internet and once your TV is connected to the internet you don’t need cable anymore. How does this effect the players…
Content Providers love this! In the short run they are now growing their audience by providing content on the Internet and Cable TV. Which increases their revenues. Plus they can launch new shows on the internet to test them before going to big budget main stream distribution. In the long run they get to add functionality to their content that only the internet brings — like instant product purchase, sampling, coupons, and promotions.
Cable Companies are scared to death. How do they justify selling two services to consumers when the consumer only needs Internet in the future.
Internet Service Providers need to figure this out. For the most part they are also the Cable Company. But more importantly, they need to figure out a model that charges consumers for usage — not just flat rates. The news is full of stories right now about ISPs capping the amount of data you can download. There is a future where the more Internet you use the more your bill will be — and TV over the internet uses a lot of bandwidth.
So, why is Hulu important? According to Neilson:
“Hulu ranks #2 (online video outlet behind YouTube) as it continues on a steep growth trajectory, increasing 490% in total streams year-over-year (YoY), from 63.2 million in April 2008 to 373.3 million in April 2009,” (Link here to full article).
People are ready for TV content over the internet. The Content Creators will be the winners. The Content distributors need to figure this new model out. Marketers will have innovative new ways to communication their message to consumers. And consumers will end up paying more — but will be getting a lot more content and functionality for their money.
