Why a Successful Hulu was a Problem

It has been reported that NBCUniversal, News Corporation, and Walt Disney Company will block access to Hulu unless you pay for both a broadband subscription and a paid TV subscription.  Such a move will prevent an estimated 3.58 million people from becoming Hulu customers and likely stifle Hulu’s future success.  Who else but the executives who brought you the Stop Online Piracy Act (SOPA) would actively strangle their own Internet success story?  With an annual doubling of revenue and average monthly growth of 100,000 paid subscribers, it must be that Hulu was too successful (and disruptive) for its stakeholders to handle.  So rather than embrace the Internet, they have opted to reverse course and try to preserve the increasingly rejected business model of cable and satellite TV.

 

Hulu Fail

Now it is not a surprise that after ten years of subscription rate increases exceeding inflation, millions of consumers have opted to save money and switch to broadband only for video consumption.  One of the reasons prices have continued to climb over the years is due to fees content companies (through broadcasters) have been extracting from cable and satellite companies for program carriage.  This process, known as retransmission consent, is also the reason why the bundles that are sold to you contain hundreds of channels you do not want to watch.  It used to be that broadcast television made its money solely through advertising and free use of spectrum (a multi-billion dollar asset) provided by the government. 

However, now fees pushed by content companies through broadcasters onto cable and satellite providers are seen as an easy way to increase profits and subsequently consumer’s bills.  While major content companies still make money with either Hulu or your cable and satellite subscription, the Internet requires content to aggressively meet the consumer at the price point they demand while the old business model forces one bulk high price.  The problem with this approach today is that consumers have the choice to cut their subscription and pay and view content through broadband.  Look no further than Comcast (who is also NBCU) and you will see that they have been losing cable subscriptions for the last five years running but continue to see growth in broadband subscribers. 

On the issue of piracy as a separate policy matter, what do Hulu’s masters think will happen when an estimated 5 percent to as high as 9 percent of TV households suddenly lose access to Hulu (much of its content already free to see via broadcast)?  Does anyone truly expect people to repurchase their expensive cable and satellite subscriptions?  When consumers have chosen to reject the old model with their dollars, one cannot just force them back and require that they perpetually pay more of their money.  Unfortunately, what will happen is more people will turn to piracy not out of malice towards to the industry, but because that is the only option left to them in these tight budget times.

Now they have every right to change their business model but this type of top down control belief that somehow you can control people’s behavior on the Internet and force them to pay ever increasing prices is the mindset that birthed SOPA.  The irony in this situation is that it could have been possible that Hulu eventually made more money than the old business model while simultaneously reducing piracy (the alleged goal of SOPA). 

Since its launch in 2007, Hulu has shown that it is possible to profit from preventing millions of consumers from engaging in piracy by making content legally accessible on the Internet.  Just in the month of March 2012 alone, 31 million people decided to watch content they could have pirated and choose to view advertising or directly pay for access through a Hulu Plus subscription.  With growth approaching 2 million subscribers and an online advertising platform that was serving 1.4 billion ads per month (more than YouTube), Hulu’s future was bright.  Despite all of this good news of break neck growth and substantial room for additional growth, the desire to preserve the old business model continues to override the necessity to embrace the future.  

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