Is Hulu Boxed In?
Picture this: TV anyway, anywhere.
Every sitcom. Every drama, documentary, reality show.
All of it — everything — Right Here Now.
This is the radical potential of the Internet. And this is the implicit promise of Hulu, the innovative Web site that drew the original borders of online television — the TV of tomorrow.
Hulu’s stated mission: “Help people find and enjoy the world’s premium video content when, where and how they want it.”
In the space of just four years, Hulu has done just that — to a point. Only now, with its industry in flux and the company up for sale, the divide between what is and what might be seems as daunting as ever.
This is the future of TV? Really?
Today you can watch some shows on Hulu in their entirety. But others you can’t watch at all. Most fall somewhere in between — bound by contractual handcuffs that hamper prospective viewers. Making it even more baffling, some episodes are free while others require an $8-a-month subscription.
“It makes catching up on a show or starting a new show very difficult,” complains Marta Garczarczyk, a fund-raiser for a science museum in Minnesota who tried to watch the ABC’s “Cougar Town” and Fox’s “Glee” through the site last season.
Hulu executives largely have their hands tied. Viewers want more shows on more screens. But Hulu’s partners — the big networks — want steady profits. And, for the moment, the networks seem to have the upper hand.
Hulu is a joint venture of NBC Universal, part of Comcast (*Note: CNBC and NBC Universal are both owned by parent companies Comcast and General Electric);Fox Entertainment, part of the News Corporation; and ABC, part of Disney. An investment firm, Providence Equity Partners, owns about 10 percent.
Partnerships of rivals rarely last. And so Hulu finds itself on the block this summer. Representatives of Google, Yahoo, Amazon, Apple and others have kicked the tires, although no clear buyer has yet emerged and Hulu has steadfastly declined to comment.
But no matter who ends up spending billions to buy Hulu, the trick will be satisfying viewers. As Jason Kilar, Hulu’s visionary chief executive, put it in a blog post last February, “History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers.”
But — through no fault of Mr. Kilar — further limitations on the site’s bounty of free video may be on the horizon. For all the innovation that Hulu represents, the site also lays bare the gulf between what online viewers want and what TV companies are willing to give them.
“Customers always win,” Mr. Kilar has been known to tell his staff.
Maybe. But not always without a fight.
EVEN critics of Hulu concede that this company has accomplished something astonishing. It has helped to free television from the tyranny of the TV set.
For decades, people watched television one way: through a boxy contraption, tied to a schedule set by broadcasters. It was all supported by advertisers and beamed free over the airwaves.
As cable and satellite choices proliferated in the 1980s and 1990s, the business model changed: shows and channels were financed both by advertisers and subscribers. But the TV set and its TV Guide-era schedules still reigned. Not until 2006, when ABC became the first network to stream shows like “Lost” and “Grey’s Anatomy” on the Internet, did television programming truly roam free. A year after that, Hulu began taking mainstream the idea of streaming on TV, computers and cellphones.
The first hint of television’s unbundling actually came back in the 1980s, when viewers snapped up videocassette recorders. For the first time, they could record shows and watch them when they wanted. Once that happened, there was no going back. VCRs paved the way for TiVo and DVD box sets.
Each generation of technology met resistance from some in the television industry, a fact that Mr. Kilar knew at first hand before joining Hulu. While working at Amazon.com in the late 1990s, he wrote the business plan for the company’s VHS and DVD businesses. He witnessed skirmishes with TV studio chiefs who worried that direct sales of shows would damage the Blockbuster rental model. Over time, the studios came to embrace the sales model.
SUFFERING FROM "TECHNOLOGY ANXIETY"
For Mr. Kilar, who declined to be interviewed for this article, those skirmishes showed how some television executives suffered from a sort of technology anxiety. They wanted to maintain the status quo for one more season or contract cycle.
But other executives saw that TV was being freed from the Box. They also saw how the music industry was being ravaged by similar forces. And so Hulu was born.
By working together, Hulu’s network parents hoped to establish it as the go-to Web site for TV — a parallel in some ways to Apple’s iTunes, but controlled by the networks, rather than by an outside company, like Apple, that wanted more content so it could sell more iPods. It was both an alternative to Apple and a shield against the emerging threat of online TV piracy.
And it worked — boy, did it work. Visitors flooded Hulu upon its public opening in March 2008. Within a year, Hulu was serving up more video streams than any other Web site in the United States, save YouTube, the perennial No. 1.
What was there not to like? On Hulu, videos loaded quickly. New episodes were posted the morning after they made their premieres on television. And advertisements were limited to roughly two minutes’ worth during a 22-minute sitcom, versus about eight minutes on traditional TV — a huge differentiator.
In part, the light ad load was an effort by Mr. Kilar to prove the value of the service and to prove that having fewer ads would make each one more memorable — and thus more valuable. But it was also an effect of Hulu’s rocketlike liftoff. Its staff couldn’t sell ads fast enough.
A year after Hulu’s introduction, Walt Disney bought in, leaving CBS the only major network without a presence on the site. Some cable channels started to chip in content, too. The site branched into movies, foreign cartoons, news programs — anything to feed viewers’ insatiable appetite.
MEDIA, Mr. Kilar told Charlie Rose in an interview in mid-2009, “is an impulse business.” Viewers don’t need, say, “30 Rock,” the NBC comedy, the way they need food or water, he said, but “if you can make it easier to consume, people will consume more of it.”
He said he thought the “aha moment” for consumers was when they saw “that basically they could consume ‘30 Rock’ when they wanted — when it was convenient after the kids went to sleep, or in the morning when they had a break.”
“And that’s very liberating, it’s very empowering, and I think at the heart, that’s a big part of the Hulu value proposition,” he added.
Hulu’s users believed that, too, but some at the networks had their doubts that they were benefiting by giving away so much online. They privately cheered when Steve Levitan, the co-creator of the hit ABC sitcom “Modern Family,” wrote on Twitter last year: “What is Hulu without content? An empty jukebox.”
The site achieved profitability at the end of 2009, but the profit was split up among so many different content providers that it barely moved the needle for any of them. By then, Hulu had begun goosing the ad load, having up to four minutes’ worth in each 22-minute episode. At the same time, the number of episodes available for some shows started to ebb noticeably. Echoing other Hulu customers, Brandy Clabaugh, a food blogger in Poughkeepsie, N.Y., said she often found herself “very frustrated by the lack of episodes.”
But the networks wanted more. They insisted that Hulu add a subscription arm, creating the same kind of dual revenue stream that cable channels have.
Released last November, the resulting $8-a-month service, called Hulu Plus, provides a much wider selection of episodes than the free Hulu service does, and permits viewers to watch some episodes on mobile screens and Internet-connected televisions. Nearly a million people have signed up, ahead of Hulu’s expectations — but a small fraction of the 20 million subscribers to Netflix. Among Netflix’s advantages are that it came online several years earlier, has no interruptive ads and has a greater library of films.
Hulu’s advantage is its supply of TV shows from its owners and other partners. But both Hulu Plus and the free Hulu site come with an abundance of caveats that baffle customers like Sarah Scott, a Web developer in Chicago. Ms. Scott pays for Hulu Plus so she can stream shows to her iPad and to her TV set through her Xbox 360. "I don’t even mind the ads," she said.
