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Comcast-NBC Deal: Hulu’s Free Online Video Days Could Be Numbered

Phillip Dampier October 13, 2009 Comcast/Xfinity, Online Video, Video 12 Comments

huluTM_355The reported deal between Comcast, the nation’s largest cable operator and NBC-Universal, part owner of Hulu, could have serious consequences for the Internet’s most popular destination for online television shows and movies.

In just a year, Hulu has enjoyed a quadrupling of visits well into the millions, streaming dozens of network television series, specials, and movies, all supported by commercial advertising.  Devised to help combat online video piracy and earn additional advertising revenue from web watchers, Hulu partners NBC, Fox and Walt Disney Co., have been successful at drawing scores of Americans to the video website.  Program distributors have also been pleased, earning money from shows like Lou Grant that haven’t been on network television in decades.  But after the economic crash of 2008, the venture has proven costly for the partnership, challenged by an advertising marketplace on life support and outright hostility by broadband providers, cable operators, and Wall Street investors, upset that the service is giving it all away for free.

Among the loudest to complain is Comcast, which is now angling to acquire NBC, and its 30% ownership stake in Hulu.

Comcast CEO Brian Roberts has repeatedly complained about the implications of giving away online video, which for some have begun to replace cable television subscriptions.

“If I am any one of these programmers, not just ESPN but the Food Network and I have a business in that 50 percent, 60 percent, 70 percent of my business comes from subscriptions, I want to think long and hard before I just put that content out there for free and not think through what it is going to mean to my business,” Roberts said at an investors conference in May.

Roberts view was shared by the CEO of the nation’s second largest cable operator, Glenn Britt of Time Warner Cable.

“If you give it away for free, you’re going to forego that subscription revenue,” Britt said. “And if you actually think the ad revenue can make up for that, then God bless you and go on your way. But I don’t think that’s the case, and (networks) don’t really think that’s the case either.”

The difference between Comcast and Time Warner Cable is that the former could gain part ownership in the largest service now giving it all away for free, and that has major implications for Hulu’s future.

“Would Comcast put an end to the Hulu model of using the Web to distribute free TV content?” asked Michael Nathanson, senior media analyst at Sanford C. Bernstein & Co. “Will Comcast continue to support Hulu?”

The Los Angeles Times reports there is already a precedent for Hulu limiting content for online viewers in response to complaints:

Hulu already has limited users’ access to certain cable programs, including FX’s “It’s Always Sunny in Philadelphia,” in response to an outcry from the TV producers and cable companies that object to paying TV programmers hundreds of millions of dollars each year for shows that are offered free online.

“Arguably, their ability to shape online content distribution, and to recast windows for video on demand, would be an important attribute of any deal,” wrote Craig Moffett, a cable industry analyst at Sanford C. Bernstein.

Comcast’s interest in NBC Universal would dramatically expand its entertainment portfolio with such attractive cable channels as USA Network, MSNBC and CNBC as well as the Universal Pictures movie studio. The proposed Comcast-NBC Universal venture also would give the cable operator a greater role in deciding how and when TV shows and movies are distributed online and at what price to consumers.

Comcast’s influence would primarily be felt in cable network programming streamed online, as Comcast has a vested interest from the millions it currently pays those programmers to carry their networks on Comcast cable systems nationwide.  Comcast could advocate Hulu become a partner in the TV Everywhere cartel, providing video content only to “authenticated” pay television subscribers, or it could limit the number of episodes available for free, or when those episodes appear on the service.

Soleil Securities media analyst Laura Martin thinks an even more likely possibility would be charging a fee for some of its more popular content.  Martin points to Hulu’s own financial problems, a consequence of the crash in the advertising market.  Soleil estimates that the three partners subsidize $33 million of the losses at Hulu even after earning $123 million this year from advertising.  Even worse, Martin says, is the cannibalizing of the networks’ own advertising earnings from broadcast runs of those shows now available online.  She told the Times that for every viewer who migrates to the Internet, the companies forfeit $920 a year in ad revenue.

But not everyone believes the Comcast-NBC deal is such a great idea.

Time Warner CEO Jeff Bewkes today told an industry conference in Manhattan that large media mergers have had a lousy track record.  Still, he said the merger would probably benefit the cable industry as a whole, because broadcast networks content with giving away content for free online will now be a part of the very industry hurt by that formula and will be more friendly towards arguments to stop it.

“We love to see our competitors taking risks,” Bewkes said.

CNBC’s Julia Boorstin talked with Hulu CEO Jason Kilar in September about the desire for the company to partner with the cable industry’s TV Everywhere project.

Currently there are 12 comments on this Article:

  1. Smith6612 says:

    Making Hulu end the way it is ran wouldn’t be too good. Thanks to the fact that Stargate Universe is up on Hulu, I have been watching Stargate from Hulu. Sure, I already pay close to $70 for standard definition satellite TV for four receivers, one of which is a DVR. The thing Hulu has going for it besides the fact that it is free, is that the commercial breaks it has are very short, and this is one thing I love. I stopped DVRing Stargate Universe due to the fact that SyFy insists on filling 24 minutes of that show with commercials. I would much rather watch a Hulu commercial break which has never been for any more than 30 seconds long for me than deal with what I get with my money on pay TV for premium networks. Seriously, I have no problem and have been considering dropping pay TV service here as many have already done as my Internet connections provide me with all that I need.

  2. Ian L says:

    The minute Hulu becomes a TV Everywhere participant, limiting shows to cable customers, I’ll bet P2P traffic will jump back up, as people grab those same shows via BitTorrent.

    The only way you can compete with free is by doing free and easy or just REALLY easy. Hulu is free and easy. BitTorrent is free. If Hulu becomes a for-pay product, cablecos can sit back and watch as their customers stick to internet-ony packages, yet pull down more traffic via BitTorrent and don’t watch the ads on the shows.

    • Brion says:

      I’m still waiting for the day cable companies make it so inconvenient and expensive for customers that people break their TV addiction altogether. Then the cable companies will have no one but themselves to blame.

      I used to pay for cable but when I realized I was spending $100+/month mostly for TNT and Internet I gave up TNT. Hulu is nice because if I miss a network show when it was broadcast then I can see it. If Hulu goes pay then I will get my MythTV DVR working again and start recording the few shows I like. If that goes away I’ll do something else with my time.

      Cable tv is not as critical to my life as Internet is. I don’t pay my bills through cable. I don’t keep in contact with friends and family over cable tv. One of the first luxury expenses to go was tv, and I haven’t missed it.

      • Smith6612 says:

        I’m pretty sure they’re nearing that as TV networks seem to keep wanting to raise prices. Right now for me to get a single channel A-La-Carte from Dish Network, it’ll tack on I believe $1.99 per channel I want. Honestly the only reason my bill is $70 is because of the 4 receivers (Standard Definition, and old), and because in order to watch some of the local Team sports games and a few other channels we have to have a higher package. Truthfully, just hand me a package which says I can choose any 10 channels to get, and allow me to change which channels I want monthly or bi-yearly for no more than $30 including the channels and the receivers in there, and I’ll be fine with that. I’ll choose MSG, a few local channels, SyFy and Boomerang and whatever I have left on other channels. That’s all I ever watch. Heck when it comes down to it I’ve already paid off my 7 year old receivers, and the DVR is pretty much paid off as well when you look at the bill.

        • BrionS says:

          But but…if they offer ala carte then all those crappy channels no one likes will disappear! That would be a travesty.

          </ sarcasm>

  3. Uncle Ken says:

    Like nobody could see this coming. Brick by Brick.

  4. Greg says:

    I stopped my cable service years ago. I watch movies all the time now. And with my desktop hooked up to the tv I can get a lot of content via the internet. If Hulu dies or becomes pay only – so be it – I won’t be going back to cable. Why PAY to watch commercials at least 50% of the time??

    I’m still amazed at the power-plays the cable and telcos continue to throw out there even with the heat rising from fed-up customers, sites like this, and the potential (perceived potential) of Congress looking into it. They either have huge balls or have knowledge that they have our politicians in their pocket which keeps them comfortable.

    Here is a thought – next to health care and maybe education the entertainment industry is the biggest most profitable industry in the US now. If you go over to Europe you’ll see that their music, movies, and television shows are all US made. (Kind of strange watching David Hasselhoff’s (sp?) lips move in English but the words are French – kind of like those old out of sink Godzilla movies – but the French don’t seem to care) I could see the entertainment industry having the power to impose broadband caps – thereby limiting our growth in all other things internet related. While the rest of the world surpasses us in everything except entertainment. Another thing you figure out if you spend any time across the pond is that those people don’t spend one tenth the time watching TV as Americans do – they are doing productive things instead.

  5. Tim says:

    I don’t care if they do get rid of Hulu. It still won’t make a difference in how I watch TV shows. I get all the shows off of Usenet in HD 720p commercial free and I don’t for one second feel bad about it. Why? Because I am inundated with advertisements everywhere in my life and I am sick of it. When I am in a car, I get advertisements. When I am walking down the street I get advertisements. When I listen to the radio, I get advertisements. Just about everything I do involves looking at advertisements because they are nearly unavoidable. The average 1 hour show now has nearly 20 minutes of commercials. That is 1/3 of the hour dedicated to commercials. I am sick of being an object of consumption for these companies and conglomerates. No, I don’t feel bad at all. If the cable company wants to be relevant in this age, then need to switch to ala carte programming. There are way too many channels to begin with. Do we need 500 channels for real? How many channels do people really watch out of a channel lineup: 10, 15, 20, 30? I would bet it would be under 20 for the average joe. So you have 80 channels that aren’t being watched on a 100 channel package, 80! Why pay for 80 freaking useless channels?

    Sorry for the rant but that is how I feel…

    • me says:

      To me it is about cost trade off. At the end of my cable days I was at 60 bucks a month (I started at about 25). I realized I did not really watch that much TV. I would sit there and go around in circles on the channels looking for something to watch. I then started using a PVR. For a year or so I enjoyed that but after awhile I did not even bother to watch what I was recording.

      As for usenet it is ok if you are willing to dig thru hundreds of garbage titles too. Never mind the legality of it.

      There is a *TON* of garbage out there. It is not just about commercials. There are just many shows that frankly are not worth watching at all.

      Ala carte might lure me back to them. However, guess what? I would be willing to bet cold hard cash that after 2-3 years the ‘fees’ went up. To cover some crises they are having and never came back down. Slowly we would pay 30-35 for 2-3 channels. Oh at first it would be grand and ‘cheaper’ at probably 2-3 bucks a channel. Later on?…

      So these days I take my ‘cable’ money and buy DVDs on amazon, used. You can usually get a season of something for 20-30 bucks or 5-10 movies for 60. I then only have a physical problem of where to keep the DVDs.

      At first when I cut the cord I watched a ton of HULU. After awhile though I realized it too was just a time shift of the same junk I was skipping over with the remote on cable.

      I am the one the people these guys should be worried about. I am bored with their content which frankly is over priced for what it is. At one point I had the TV schedule memorized. I knew when the good shows were on. It was about 15-20 years ago something changed (either in me or on tv) where I realized most of this stuff is junk. Them considering crippling HULU does not make me think ‘oh I better come back’. It makes me think less of them.

      • TM says:

        Back in about 2002 I lost my job and to save money I cut off my cable (but kept my roadrunner). After about 2-3 months I realized I didn’t miss watching TV. I tried a couple TV top antenna’s but I was over 25 miles from the broadcast towers and didn’t get even close to a decent signal. I said to hell with it and only turned the TV on to watch a movie. I still don’t really care much about TV, though I do watch a few shows with my wife that she enjoys a lot and I find entertaining. But TV as a whole is pretty much dead to me.

        I’ve grown a lot as a person in the last 6-7 years without TV having much of a place in my life. Access to the Internet is far more important to me.

      • Tim says:

        “As for usenet it is ok if you are willing to dig thru hundreds of garbage titles too”

        Yea back in the day you had to do that but not now. With NZB, Newzbin Files, it is a simple search on Newsleech or Binsearch to download the NZB and off you go. If you can use a search engine like Google, it is relatively simple. All the relevant posts to that file are included in the NZB’s information. No need to download headers or browse through hundreds if not thousands of files.

        As far as legality, ehh, no different IMO than recording the show and removing or skipping the commercials yourself.

      • Smith6612 says:

        I do miss the days where I had Basic Cable from Adelphia and my On-screen guide was the TV Guide channel (it was something such as channel 99 or what not that was far away from the other channels). I also miss the days where yeah, I could remember when each show was going to come on as it was always at the same time during the day (made it easier for recording things too) and there were less random commercials. Now a days, sure I can still do that but with everything else being rescheduled/canceled, the on-screen guide has become a must need. The time when I had Basic Cable was also the time I had Dial-up Internet Service, so I wasn’t too deep into the Internet at that time as besides my old phone line being miles long (which meant slow dial-up), it was much too slow to really mess around with anything (mention the fact I did use AOL as well, which was a mistake honestly).

        After Basic Cable, I moved to Digital Cable for a few months which I later removed due to the way Adelphia was at the time, and went with Dish Network who I’ve been with for a while. Compared to the cable, it was a nice change as I got better picture quality (since I could work with a digital source now), better sound quality (many channels came in on 5.1 audio. Can’t find that any more even on the premium channels unfortunately). Of course, back then I was also with the most basic package Dish had to offer however there were a few channels we were missing that we did watch on the cable. We upgraded our package since it was cheaper back then to do so. Since then, we’ve just been getting price hikes from the networks, and the commercials are the same or even more (look at any Viacom channel. Absolutely terrible!) and it’s gotten worthless to me.

        In comes DSL, and I was pulled away from TV rather quickly since the Internet allows me to do much more with the money I put into it. It gives me a place to help provide technical support to people which I do out of my own time. Also provides for my Entertainment needs, such as from the online games I play (I play a LOT) to YouTube/Hulu. And of course, it’s a place of information. I’ve had DSL for 5 years now, and since I’ve gotten it I’ve only watched really 4-8 hours of TV a month. The only show that really did bring me back to TV besides watching our local sports games which I can’t get on Antenna was Stargate SG-1, and then later on Battlestar Galactica and Stargate Atlantis. Now, I would have still watched a bit of TV if SyFy didn’t cram so many commercials into Stargate Universe, but I watch Stargate over Hulu now which is one of the reasons why I visit that website.

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