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Should Every TV Content Owner Take a Stake in Hulu?

by User Not Found | Mar 04, 2010

Viacom is not happy. It is not happy sharing ad revenues with Hulu for their hottest TV shows. It believes the shows should worth more than Hulu can offer now. So Hulu has to remove Comedy Central’s The Colbert Report and The Daily Show With Jon Stewart. Here is Hulu’s blog post about the issue with Viacom. This is clearly bad for consumers, who want to have their content access all at one place rather than going to different sites. As Internet is playing a more important role in TV and video content distribution, consumers benefit from the openness of Internet, where they can search for specific content they want. Meanwhile, they also have to live with the pain that content distribution is so fragmented online that they have to jump around a bunch of video websites to watch different content. Some media executives say that media industry is a convenience industry. What it means is that one of media companies’ major value propositions is to provide convenience to consumers to purchase and to enjoy media content. It is apparently true. If a media company creates great content, but makes it hard or unaffordable for consumers to access, it would end up for consumers either pirating the content or looking for something else to entertain themselves. This might not be the case for the two Viacom’s show, as consumers can still watch the show at TheDailyShow.com and ColbertNation.com, but it at least suggests that Viacom hasn’t found its ideal content distribution practice online. Hulu, founded by NBC and FOX in 2007, provides consumers an single gateway to access content from NBC and FOX as well ABC now. Its owners like Hulu, as it is their own distribution channel online that is fully controlled by them. 100% of the revenues generated by Hulu goes to the shareholders proportionally, after subtracting the costs. However, for an outsider like Viacom who does not have a stake in Hulu, the video aggregator is merely like another YouTube with more targeted audience, as Hulu will take a cut of the revenues generated by Viacom content. We at Strategy Analytics have been long positive at Hulu’s business model than at YouTube’s, given that Hulu is not required to pay upfront minimum guarantee to its owners, while for YouTube, the upfront payment is usually needed. But in Viacom’s case, Hulu has no difference from YouTube for them. I believe it is a loss for both parties to remove the show from Hulu, as Hulu loses great content whereas Viacom loses audience, despite Viacom believes that its own loss is not as big as Hulu’s. So is there a solution for the issue? Probably. Viacom could join ABC, NBC and FOX’s club to own a stake in Hulu, which could let them enjoy Hulu’s long-term growth in stead of caring about short-term money. Hulu would also benefit from Viacom’s high quality programs enhancing its current competitiveness. Consumers will love it since they don’t need to jump to different websites to watch the videos they like. Certainly, there are several barriers that need to be tackled in order for this to happen. First, it is unclear if ABC, NBC and FOX are willing to let their competitor to own a part of Hulu. Even they are, conflicts on the control of the site among these large media companies could be an issue in the future. Second, Hulu would be declared as a monoply if they gain investment from most of the big media firms. A similar online video service proposed by BBC, ITV and Channel 4, Project Kangaroo, has already been blocked by the UK Competition Commission.  Stay in the status quo or go to buy a stake of Hulu? Now it’s up to Viacom to decide. Jia Wu Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence! Technorati Tags:
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