Aloha Hulu? NBC, Fox’s Video Site May Have Missed Media Tide
NEW YORK -(Dow Jones)- NBC Universal and Fox appeared set this spring to shake up Internet video with the announcement of a joint venture expected to challenge Google Inc.’s (GOOG) YouTube.
Six months later, that business - now dubbed Hulu - has lost cachet and may become irrelevant even before its delayed start. Many question the need for another online video site and wonder how Hulu fits into the broad Web- distribution strategies most media companies already are pursuing.
“Hulu is overkill,” said Kathy Sharpe, chief executive of Sharpe Partners, a New York interactive advertising agency. “It’s becoming apparent that you don’t have to have a Hulu for the networks to put out quality video or trailers to get consumers to watch.”
Hulu’s challenges point to the difficulties media companies face as they try to retain control over how their content is seen and sold in a freewheeling digital world.
To be sure, few are predicting Hulu’s imminent demise. The venture has deep- pocketed parent companies - News Corp. (NWS NWSA) and General Electric Co. (GE) - and has garnered attractive distribution deals with the Internet’s biggest names. And even if Hulu falls short of lofty expectations, the venture is seen as a boon for advertiser acceptance of Web video.
Yet Hulu remains a work in progress. Weeks before the start of a test run, Hulu is keeping details under wraps, and Fox and NBC referred questions to Hulu representatives. It’s expected that Hulu will show full episodes of TV series and short TV and movie clips from News Corp. and NBC properties, as well as other television networks.
(News Corp. is slated to acquire Dow Jones & Co. (DJ), publisher of this newswire.)
Syndication Strategy
Starting sometime this month, people who sign up for an early peek will be able to access online video at Hulu.com. It could take months before Hulu.com is broadly available - a significant delay from the summer start date NBC and Fox announced initially.
Content also will be available on Web sites representing the vast majority of Internet traffic thanks to distribution deals with Yahoo Inc. (YHOO), Microsoft Corp.’s (MSFT) MSN, News Corp.’s MySpace, Time Warner Inc.’s (TWX) AOL and Comcast Corp. (CMCSA CMCSK).
In making content available both at a single site and at many places across the Web, NBC and Fox are hedging their bets about where people will go to watch Web video. The two-pronged strategy faces challenges on both sides.
Hulu’s syndication feature may have been novel six months ago, but the TV networks worked hard over the past years to place shows on their own Web sites and Internet portals like AOL.
Fans of Fox television shows, for example, already can watch series for free on Fox.com as well as the Web sites of local affiliates. Paid downloads of Fox series also are available on Apple Inc.’s (APPL) iTunes, Amazon.com Inc. (AMZN), Wal-Mart Stores Inc. (WMT) and file-swapping site BitTorrent.
People who have heard Hulu’s plans say the venture has scored very advantageous deals with its distribution partners, retaining much of the ad dollars drawn by Hulu content, locking in copyright protections and winning prominent placement on its partners’ Web sites.
Crowded Landscape
Creating another YouTube - a site where millions swarm to watch video online - also is a Herculean task, requiring dashes of marketing prowess and good technology and heavy doses of savvy management, luck and opportune timing. It’s not clear which, if any, of these features Hulu is blessed with.
“I don’t think the world needs another new online video site,” said Richard DeSilva, a partner at venture firm Highland Capital Partners specializing in digital media. “Why would you go to Hulu.com versus Yahoo?”
George Kliavkoff, chief digital officer at NBC, hinted at a recent media conference that there would be advantages for people to watch video at Hulu.com over the distribution partners. He indicated visitors to Hulu.com might see better-quality video and enhanced ability to slice-and-dice clips of video content.
Hulu’s struggles are underscored by the lack of media supporters. NBC and Fox have talked with potential content partners, including Viacom Inc. (VIA), owner of MTV, Comedy Central and Paramount Pictures; Walt Disney Co.’s (DIS) ABC network; CBS Corp. (CBS); and Time Warner (TWX), parent of the Warner Brothers film studio, TBS, TNT and other cable networks. None has signed on.
For now, other media companies either aren’t interested or playing wait-and- see with Hulu. If the venture proves successful, other media companies could join up but are unlikely to commit to the Hulu venture exclusively. Even in the six months since Hulu was announced, media companies have firmed up their own digital technologies and strategies.
Executives from NBC and Fox said involvement of other companies might limit their flexibility. Even with just two media companies, worries exist that there are still too many cooks in Hulu’s kitchen.
“When big companies partner in a deal, they can have very different needs,” said David Hallerman, senior analyst with research firm eMarketer. “That’s part of my concern about Hulu.”
‘Killer App’
Even critics say Hulu’s most important contribution may be increased consumer attention and marketing dollars devoted to video online.
“The good news is the more people out there providing platforms to let people watch video, the better off we’ll be,” said Herb Scannell, a former executive at MTV Networks and now chief executive of digital-video company Next New Networks.
Already, three out of four people who use the Internet watch video online, according to comScore Inc. (SCOR), and the numbers are expected to climb as high-speed Internet connections become ubiquitous in homes and on mobile devices.
Advertisers are likely to follow. While advertising associated with Web video remains a fraction of the more than $70 billion spent each year on U.S. television commercials, growth is expected to soar 89% this year to $775 million, according to eMarketer.
By 2011, video is expected to eat up one out of every 10 dollars spent on Internet ads.
Because of the involvement of NBC and Fox, media companies trusted by marketers, Highland Capital’s DeSilva called Hulu “training wheels” for marketers beginning to creep into online video.
“Video is the new killer app,” said Jonathan Silver, founder of venture- capital firm Core Capital. “Everybody understands that video is an integral part of where the Internet and electronic communication are going.”
In the fragmented and young world on online video, plenty of people think there’s a place for Hulu.
“I think it has a reasonable shot” of success, said Silver.
NBC and Fox have won kudos for giving Hulu the independence to find its own way. The joint venture has its own chief executive, former Amazon executive Jason Kilar, and a prominent backer in Providence Equity Partners, which has committed $100 million to the joint venture in return for an equity stake and board representation, according to people familiar with the deal.
Hulu also gives Fox and NBC a laboratory to see what people will watch in Web video and test new advertising models. Kliavkoff acknowledged last week that a bunch of the companies digital initiatives won’t work. The key, he said, is to ” fail fast.”
Sharpe, the interactive-marketing executive, believes that’s exactly what Hulu will face.
“In 18 months it will be ‘Hulu what?’” she predicted.
