According to a recent article on the WSJ, Fox is killing free next-day viewing on Hulu (which it co-owns with NBC and Disney/ABC) for all of its shows unless you can be authenticated (assimilated?) as a paying cable subscriber. Just the latest example of Hulu being slowly suffocated by its own owners. I thought this was a good occasion to share something I posted on Quora July 6 answering the question:“Why is Hulu for Sale?” So here it is…
Q: Why Is Hulu for Sale?
A: I’m sure there are many reasons, but I imagine Hulu has paid an enormous amount in licensing fees to NBC, Fox and ABC, not to mention their sister cable networks, movie studios, etc. to distribute their programming which doesn’t leave a lot left over to spend on actually growing or marketing the company (nevermind sustaining it).
To offset those hefty fees Hulu added the subscription-based Hulu Plus service and significantly upped the volume of ads it served (1.3 billion in May alone). The problem with that is, having that many ads takes a bite out of the audience experience. Hulu is distributing one of my web original shows right now and they’re serving an average of 4 minutes of ads per each 8-9 minute episode (2 minute pre-roll, 2 minute mid-roll). It’s enough to make folks want to watch it on other platforms where we’ve chosen to make it an ad-free viewing experience.
Another issue I imagine is, since the TV networks command higher licensing fees for international distribution, Hulu is geo-blocked everywhere but the U.S. which takes a massive chunk out of your potential audience. More traffic would allow Hulu to raise ad rates but cost them more in international licensing fees.
Lastly, until recently, Hulu didn’t support playback on any mobile devices because 1. The networks wouldn’t license the required additional mobile distribution rights for their programming; and 2. Hulu stood firm on remaining Flash-based so access via iOs (iPhone/iPad) was impossible. Android users couldn’t access it either because again, Hulu didn’t have mobile rights. In the last year Hulu has since paid even more to the networks for mobile rights and allows iOs users (and some Android users) to stream Hulu via its dedicated mobile apps but only if you live in the U.S. and you’re paying $8/month for Hulu Plus. Ironically, Hulu Plus subscribers get served the same amount of ads (mobile rights cost extra) except now they’re also paying (access to a larger library of content is little comfort for Plus subscribers when you know the ad load is the same).
So, why is Hulu for sale? In my opinion, they were forced by their old media owners to pay huge licensing fees (which seems counterintuitive), leaving nothing to run the business. That forced Hulu to serve more ads, which annoyed the users it DID have. Then they killed Hulu’s ability to scale by denying access to the majority of the global online population and anyone with a mobile device but not before bleeding them for more money they didn’t have to cover mobile licensing fees so they could further alienate users by charging them $8 a month to watch the same amount of advertising via a native app that until very recently wasn’t even available for the mobile OS used by the majority of the U.S. population. There was also that little glitch recently that exposed users data when Hulu finally integrated Facebook Connect and shut it down in the first few hours but that’s a whole other problem.
This is why Hulu’s potential buyers are mostly tech companies like Google and not like the old school media companies selling it. Because media companies quickly became threatened by their own creation instead of appreciating the potential it once had to help them.